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

In a variable life insurance policy, market risk is considered the greatest risk because the investment component of the policy is tied to the performance of various underlying assets, such as stocks and bonds. This means that the cash value of the policy and the death benefit can fluctuate significantly with market conditions. If the market performs poorly, the value of the investments may decline, directly impacting the policyholder's returns and ultimately their financial security.

While other types of risks like credit risk, interest rate risk, and inflation risk can also affect insurance policies, they do not have the same direct and immediate impact as market risk in the context of variable life insurance. Credit risk pertains to the possibility of a borrower defaulting on a loan, interest rate risk involves the potential for changes in interest rates affecting fixed-income investments, and inflation risk refers to the erosion of purchasing power due to rising prices. However, market risk, given its direct relation to investment performance and volatility, poses a more significant threat to the value of a variable life insurance policy.