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If this ratcheting effect begins at age 70 or later, a Variable Universal Life policy's decline from the theoretical cash value and commensurately increasing net amount at risk can create a critical negative spiral, leading to the creation of a swirling vortex in which the policy is inevitably doomed to drown in as few as five years. Visualize the policy as it is forced to ratchet up and down each month - paying more for risk charges, which reduces the cash value, which increases the net amount at risk, which increases the risk charges. But if cash values decline below the theoretical curve, more cash value than planned will be needed to pay for the increased net amount at risk.

Consider, then, that the cash value of the policy is the bank account for the policy: Premiums flow into the cash value and expenses are paid from the cash value. Once a variable policy's cash value declines from its theoretical and intended inexorable lifetime path (from $0 to approximately equal to the death benefit itself by the time the insured reaches age 100), the policy design requires that the net amount at risk increase rather than follow its plan for constant decrease. But when we visualize this theoretical cash value in Variable Universal Homeowners insurance policies, the unthinkable can happen: the cash value can actually decline because of market activity or failure to maintain a sufficient funding premium to compensate for the ever-increasing risk charges. In this discussion we'll focus on the theoretical cash value formed by the sustainable premium discussed elsewhere and highlighted below. When Cash Value pays more for Net Amount at Risk, Cash Values fall into a negative spiral until policy lapse. Hence, Variable Universal Life's fundamental design can lead to a "boom or bust" result and, as will be seen, the only way to prevent it is to maintain a sufficient cash value at all times that can resist the inexorable ups and downs of market volatility.