What is the effect of market volatility on a VUL policy?

Market volatility has a significant impact on a Variable Universal Life (VUL) policy because this type of policy allows for investment in various market-based options such as stocks and bonds. The cash value and the investment component of a VUL policy are directly tied to the performance of these investments. When market conditions fluctuate, the value of the underlying investments can rise or fall, resulting in corresponding changes to the cash value of the policy.

This means that during periods of market volatility, the cash value can experience fluctuations significantly. For instance, if the market performs well, the cash value may increase, offering potential for greater returns for the policyholder. Conversely, if the market declines, the cash value can decrease, which may negatively affect the policyholder’s investment if they need to surrender the policy or take a loan against it.

This characteristic of VUL policies makes them appealing to investors looking for growth potential but also introduces a level of risk. Hence, understanding that market volatility impacts both cash value and investment opportunities is crucial for anyone considering or managing a VUL policy.