How does market performance impact a VUL policy’s cash value?

Market performance directly affects the cash value of a Variable Universal Life (VUL) policy because the cash value is tied to the underlying investment options chosen by the policyholder. In a VUL policy, the cash value can fluctuate based on the performance of these investments, which typically include stocks, bonds, or mutual funds.

When the market performs strongly, the investments within the VUL can appreciate, leading to an increase in the cash value. Conversely, if the market performs poorly, the value of these investments may decrease, which can result in a reduction of the cash value. This characteristic of VUL policies demonstrates the connection between investment performance and the cash value component, emphasizing that the insured is subject to market risk, allowing for potential growth as well as the possibility of loss.

It’s also essential to note that while the performance impacts cash value, other factors such as policy fees and the cost of insurance will also play a role but do not directly negate market performance effects on cash value.