How is the insurance risk shared among policyholders in a VUL policy?

In a Variable Universal Life (VUL) policy, the insurance risk is shared among policyholders primarily through pooled premiums that contribute to covering claims and funding the insurance component of the policy. When individuals purchase a VUL policy, they pay premiums, which are pooled together. This pooling allows for the distribution of risk among all policyholders. When claims are made—whether due to death benefits or other payouts—the funds for these claims come from this collective pool of money.

This mechanism is essential in insurance because it ensures that the cost of risk is spread out among all participants, making it more affordable for each individual policyholder. The premiums fund both the death benefit aspect of the policy and build cash value, which can be invested according to the policyholder's preferences. This structure reflects the fundamental principle of insurance, which is to manage risk collectively and provide financial protection to individuals based on shared contributions.