What is one of the risks associated with Variable Universal Life insurance policies?

Variable Universal Life (VUL) insurance policies are designed to provide both a death benefit and a cash value component, which can be invested in various instruments like stocks and bonds. One of the key risks associated with these policies is that market fluctuations can significantly impact policy performance.

The cash value of a VUL policy is not guaranteed and can increase or decrease based on the performance of the investment options selected by the policyholder. If the market performs poorly, the cash value may decrease, which can affect the overall value of the policy and the death benefit. This variability introduces a level of risk that policyholders should consider, as it may lead to unexpected outcomes regarding both the cash value accumulation and the death benefit provided to beneficiaries.

This risk is critical for policyholders to understand, as it underscores the importance of actively managing investments within a VUL policy to align with their financial goals and risk tolerance.