Final answer:
The gains realized each year in a Universal Life policy are credited to the policy's cash value, which can be accessed by the policyholder but may affect the death benefit.
Step-by-step explanation:
The gains realized each year in a Universal Life policy are credited to the policy's cash value. Unlike some other policies that might invest in separate accounts such as mutual funds, the gains in a Universal Life insurance policy accumulate in the general account of the insurance company. However, these gains are reflected in the increase of the policy's cash value, which can be used by the policyholder for various needs, much like an account.
As the policyholder, you can typically access this cash value through loans or withdrawals, but it's important to understand that these actions can reduce the policy's death benefit. It's also worth noting that the cash value typically earns an interest rate that's set by the insurance company, which can sometimes adjust periodically within certain contractual limits.