Final answer:
Variable universal life insurance policies may offer guarantees on cash values or minimum interest rates as a safety net for the policyholder's investments. These guarantees provide protection against the risk of investment loss but could come with additional costs. It's crucial for policyholders to understand the specific terms of their policy and consult with professionals before making a decision.
Step-by-step explanation:
Variable universal life insurance is a type of cash-value (whole) life insurance which combines death benefit protection with the ability to accumulate cash value over time. This cash accumulation account can be invested in a variety of different sub-accounts, similar to mutual funds, which can vary based on stock, bond, or money market returns. The key feature of a variable universal life policy is the flexibility it offers in terms of premiums and death benefits.
Some variable universal life insurance policies offer guarantees on the cash value or minimum interest rates, ensuring that even if the chosen investments underperform, the policyholder will not lose the principal value of their investment. These guarantees are designed to provide a safety net for the policyholder in volatile markets. However, it's important to note that such provisions are policy-specific and can depend on the insurance company and the options chosen at purchase.
It's also crucial to understand that these guarantees may come with additional costs and fees, which should be carefully evaluated against the potential benefits. Unlike the guaranteed minimum wages in the United States, which aim to ensure a minimum income for workers, guarantees within variable universal life insurance are concerned with protecting the policy owner's investment in the policy. Prospective buyers should consult with a financial advisor or insurance agent to fully understand the implications of these guaranteed aspects of their life insurance policy.