Is more choice always better? When it comes to your investment choices on variable life insurance policies and variable annuities, life insurance companies seem to think so.

Since the roar of the stock market in the mid-'90s, when consumers poured money into variable annuities and variable life products, many life insurers have increased the number of sub-accounts available within their variable products. Sub-accounts, found on all variable products, are a series of investment choices similar to mutual funds.

While many insurers are offering more options to diversify their investment offerings, many of the sub-accounts are aggressive growth funds that might produce either robust or shrunken returns.

Since a healthy sum of cash value in a variable life or variable universal life insurance policy is needed to pay the costs of keeping the policy in force, policyholders should choose their sub-account investments with extreme caution.

The lowdown on sub-accounts

When you buy a variable universal life insurance policy, you allocate your premium payments to a separate account, which is made up of variable sub-accounts. These sub-accounts invest your allocated premiums in their underlying portfolios. Those portfolios may be comprised of stocks, bonds or money market instruments. Your cash value will fluctuate based principally on the investment performance of these portfolios. Each month, your insurance company will debit your cash value to pay the policy's monthly charges, which include a charge for the cost of insurance. The policy will remain in force for as long as the cash value of the policy is sufficient to pay those monthly charges.

While you can withdraw part of the cash value or take out a loan against it, enough money must remain in the cash value to pay for monthly insurance expenses. If the money runs too low, your insurer will send you a letter asking you to pay more in premiums. Otherwise the policy will lapse. So the performance of your sub-accounts is vital to keeping your policy in force.

When you buy a variable annuity, your money also is invested in a separate account, similarly comprised of variable sub-accounts. When you annuitize - begin to receive a stream of payments from your contract - the payments you receive are based on the performance of those sub-accounts.

The growing number of sub-accounts

Thousands of sub-accounts have been introduced for variable life, variable universal life, and variable annuities, according to Morningstar, an investment tracking and ratings firm based in Chicago.

Many major life insurers have upgraded their sub-account options. William Goslee, vice president of investment management products at Nationwide, says the company decided to add more sub-accounts to give customers a "wide array" of fund choices. He says many insurers are trying to meet the demands of investors.

How risky is too risky?

Many experts say there's nothing wrong with putting your money in aggressive growth sub-accounts as long as you diversify your investments. Split your investments by putting your money in enough conservative sub-accounts to offset any poor performances from the more aggressive ones.

Goslee notes annuities are sold through Nationwide by professional advisers, who consider each client's need on an individual basis. He says it might be appropriate for an older investor to have a small allocation - 5 percent or less - in aggressive growth sub-accounts in order to be properly diversified.

Some insurers also claim people who are on the verge of retiring aren't the only ones buying variable annuities. Leonard Stecklein, senior vice president of annuities and accumulation products at Northwestern Mutual, says his company has many young annuity holders who can ride out the highs and lows of the stock market over time. In fact, one of the reasons Stecklein says his company added aggressive sub-accounts was to attract younger buyers.

Michael Snowdon, a faculty member at the College of Financial Planning in Denver, says variable life and variable universal life insurance policyholders need to be wary of choosing sub-accounts.  Snowdon warns if they invest too much in growth funds, they could wind up having to pay more for their insurance or else lose their coverage. "If people make the mistake of viewing it [solely] as an investment product, they stand a very good chance of investing the money too aggressively," Snowdon says.