What is a characteristic of Variable Insurance Products?

Variable insurance products, such as variable life insurance and variable annuities, are characterized by their investment component that allows policyholders to allocate their premiums into different investment options, typically mutual funds. This structure introduces a level of investment risk because the performance of the cash value and, in many cases, the death benefit can fluctuate based on the market performance of those chosen investments.

The potential for higher returns is tied to the market's performance, which is why these products have a higher risk profile compared to other types of insurance products that offer fixed returns. As the market rises, the value of the investments may increase significantly, allowing for greater returns than traditional insurance models. Conversely, if the market performs poorly, the value can decrease, which highlights the inherent risk involved in such products.

In contrast, options that involve guaranteed returns or those with no risk related to market performance do not accurately reflect the nature of variable insurance products. These products are specifically designed to cater to individuals seeking growth potential while also accepting the associated risks of market volatility.