Final answer:
Universal life policies may offer variable returns that are dependent on the insurance company's investment performance. Risk and return considerations are important when choosing investments, with higher risk often associated with higher potential returns.
Step-by-step explanation:
The return on universal life policies may vary based on the insurance company's investment performance. These policies have a guaranteed minimum return, but the actual return can be influenced by how well the company's investments perform.
The tradeoff between risk and return is a fundamental concept in investing. High-risk investments like stocks often offer higher potential returns to compensate for the increased risk, as opposed to low-risk options like savings accounts, which offer lower returns.
For example, a young person with a long-term investment horizon may find it advantageous to invest in mutual funds or stocks to achieve growth over several decades. On the other hand, someone closer to retirement age might prioritize stability and certainty, opting for investments with less risk and more predictable returns.
In the case of universal life policies, the higher return potential is accompanied by the possibility of variability due to underlying market risks.