Final answer:
In Variable Universal Life (VUL), the investor assumes the investment risks. It is a type of life insurance policy that combines a death benefit with an investment component.
Step-by-step explanation:
In Variable Universal Life (VUL), the investor assumes the investment risks. VUL is a type of life insurance policy that combines a death benefit with an investment component. Unlike traditional whole life insurance, VUL policyholders have the flexibility to allocate their premiums among a variety of investment options, including stocks, bonds, and mutual funds.
The investment risks in VUL are borne by the policyholder because they have control over the investment decisions. The policyholder's investment choices can result in gains or losses depending on the performance of the chosen investments. Therefore, it is important for the policyholder to carefully consider their risk tolerance and investment goals when selecting investments within a VUL policy.
For example, if a policyholder chooses to invest a significant portion of their premiums in stocks, they may experience higher returns but also higher volatility and potential losses. On the other hand, if they choose more conservative investments like bonds, they may have lower returns but also lower risk.