How may changes in tax laws impact VUL policies?

Changes in tax laws can significantly influence the tax advantages associated with Variable Universal Life (VUL) policies, particularly concerning cash value growth and distributions. VUL policies are designed not only as life insurance products but also as investment vehicles that accumulate cash value. One of the key benefits of these policies is the tax-deferred growth of the cash value.

When tax laws are modified, the benefits relating to this tax-deferred growth can change. For instance, if new regulations increase the taxation on cash value gains or alter how distributions such as loans or withdrawals are taxed, policyholders may find their costs or tax liabilities affected. Changes in tax laws might also impact the way death benefits are taxed, which is a critical consideration in the overall effectiveness of a VUL policy as an estate planning tool.

Given these potential impacts, option B correctly identifies the importance of tax laws in shaping the financial advantages provided by VUL policies. Understanding this relationship is essential for policyholders and financial planners when making decisions about insurance and investment strategies.