How does mortality risk rating affect VUL premiums?

The correct answer highlights that higher mortality risk can lead to increased premiums in Variable Universal Life (VUL) insurance. Life insurance relies on underwriting processes that assess an applicant's risk of mortality. Factors such as age, health history, and lifestyle choices are crucial in this evaluation. Individuals considered higher risk, such as those with chronic health conditions or engaging in risky activities, are statistically more likely to file claims sooner. As a result, insurers adjust premiums accordingly to reflect this increased risk, ensuring they maintain financial stability while covering potential payouts.

Lower risk does not result in higher premiums because individuals with better health and lower risk profiles are typically rewarded with lower premiums, as they present a reduced likelihood of requiring the insurance benefits. The idea of fixed premiums for all policyholders does not hold true since policy pricing is inherently linked to the individual's mortality risk rating. Thus, understanding how these risk factors impact the underwriting process is essential for grasping how VUL premiums are structured and adjusted.