SIE (Securities Industry Essentials) Practice Exam

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Which of the following investment risks is the greatest risk in a variable life insurance policy?

Interest rate risk
Market risk
Credit risk
Legislative risk

The correct answer is: Market risk

Market risk is the greatest risk in a variable life insurance policy because it refers to the risk of losing money in the stock market. With a variable life insurance policy, the cash value is invested in stocks, bonds, and other investment vehicles, so if the market performs poorly, the policy's cash value can decrease. Interest rate risk (A) and credit risk (C) are also present in variable life insurance policies, but they are not as significant as market risk. Legislative risk (D) is not a common risk in variable life insurance policies.