What type of investment option provides liquidity in VUL policies?

Money market funds within Variable Universal Life (VUL) policies offer liquidity due to their nature of investing in short-term, highly liquid instruments, such as Treasury bills and commercial paper. This allows policyholders to access funds relatively quickly without the risk associated with long-term investments.

In a VUL policy, the cash value can be directly linked to these money market funds, providing an option that can easily be liquidated if funds are needed. This appeal lies in the fact that money market funds usually maintain a stable net asset value, making them a safe and readily accessible choice for policyholders who may require interim cash flow without sacrificing the ability to earn investment returns.

By contrast, long-term bonds, fixed annuities, and whole life insurance generally do not provide the same level of liquidity. Long-term bonds typically involve a commitment over several years and might not have easily accessible cash values until maturity or sale. Fixed annuities often come with surrender charges or penalties for early withdrawal, limiting access to funds. Whole life insurance focuses on cash value growth over the long term, making it a less suitable option for immediate liquidity needs.