What does "investment risk" refer to in VUL policies?

In Variable Universal Life (VUL) policies, "investment risk" pertains to the potential for variability in investment performance. This means that the returns generated by the underlying investment options—such as stocks, bonds, or mutual funds—are not guaranteed and can fluctuate based on market conditions. As the policyholder actively participates in choosing the investment portfolio, there is an inherent risk that the chosen investments could perform poorly, leading to a lower cash value or face amount than originally anticipated. This aspect is a central feature of VUL policies, distinguishing them from more traditional life insurance products that may offer guaranteed benefits with lower risk exposure.

This understanding is crucial for policyholders, as it highlights the importance of evaluating investment choices and being aware of the potential for both gains and losses in their policies.