What is Variable universal insurance? (VUL)

November 11, 2021
Variable universal insurance

Variable universal life insurance (VUL) is a sort of permanent life insurance policy, which means that your beneficiaries will get a death benefit if you continue to pay your premiums. Some types of permanent life insurance have a cash value component that develops and earns interest with each premium payment.

VUL’s cash value is invested in a variety of assets, such as equities and bonds, that you select. If the interest on the cash value is larger than the cost of insuring you as you get older, or the cost of insurance (COI), you can use it to help pay for some of your premiums.

If you’re wealthy and have exhausted all other investment alternatives, VUL could be a good method to diversify your portfolio while also providing financial security for your beneficiaries. VUL has a better potential for cash value growth than a whole life insurance because you have more control over your investing selections.

A variable universal life policy, on the other hand, is substantially more expensive than a term life policy, and most people will see equal or better investment profits in a regular 401(k) or IRA that is not linked to their life insurance.

How does variable universal life insurance work?

VUL combines the benefits of two different types of permanent insurance plans into one:

  • Flexible premium pricing: With a universal life policy, you earn interest at a set rate, similar to a bank savings account, but your premiums might rise or fall based on whether the rate beats the market.
  • Variable life insurance provides constant premiums, and you can choose the assets into which your premiums are invested, similar to an investing account. If the rate of return on your investments isn’t high enough to keep the policy going, it may expire when the cash value drops to zero.

Variable universal life insurance combines these features in a policy with variable premiums and a selection of assets to which your premiums can be invested.

If the value of your assets outperforms the cost of your insurance, your premiums may be reduced while your death benefit remains unchanged; you can also get extra death benefit coverage at the same premium rate. As the cash value grows, you can put more of it toward death benefit premium payments and spend less out of pocket.

You could even stop paying premiums and rely solely on the cash value to maintain the death benefit. Until the monetary value runs out, you’ll be protected.

You can borrow against the cash value (including interest) or remove all or part of the principal if you need money.

If the assets don’t perform well, your premiums may rise to sustain the same death benefit coverage, or you may be compelled to accept a reduced death benefit in exchange for the premiums you’re paying now. Because, while you’re guaranteed a minimum death payment, the cash value component in VUL effectively makes up the remainder of the death benefit.

Advantages of variable universal life insurance

  • A death benefit that will not decrease, if you continue to pay your minimum premiums on time.
  • Premium payment alternatives that are flexible
  • When compared to other types of permanent life insurance, there is the opportunity to generate higher than average returns.
  • Allows you to preserve a degree of self-direction over how your financial value is invested.
  • Allows you to allocate funds based on your personal risk tolerance.

Disadvantages of variable universal life insurance

  • While a VUL may provide better-than-average cash-value growth, it may also result in a cash-value decline due to poor performance of your investment options.
  • The costs of a VUL may be higher than those of a universal life insurance policy.
  • VUL is more complicated than most other types of life insurance and should be regularly monitored throughout the policy’s term.
  • Surrender charges on VUL policies normally last up to 15 years (depending on the carrier), and they can be rather substantial in the early years of the policy.

Variable universal life insurance alternatives

VUL insurance may not be suited for you because of its high cost and unpredictability. After all, the purpose of life insurance is to provide financial support to your loved ones after you pass away.

If you’re looking for another way to invest, whole life insurance has a cash value that appreciates at a slower but more consistent rate. A last expense policy can be perfect for you if your major concern is having enough money at the end of your life.

A term life policy, on the other hand, is the ideal sort of life insurance for most people if they want the most plain and affordable life insurance with no investments.

Is variable universal life insurance something you should think about?

This sort of life insurance coverage can be an effective instrument for building and protecting family wealth, but it is a sophisticated financial product that isn’t suitable for everyone. It may, however, be a possibility for you.

Consider the following questions:

  • Do you want to increase your cash value growth potential while also increasing your risk?
  • Are you confident in your ability to select and allocate investments?
  • Are you looking for (or in need of) premium flexibility?
  • Is it possible for you to commit to an annual (or more regular) policy review in order to keep track of your investment subaccounts and premium payments?
  • Are you willing to devote the time necessary to assess policy possibilities and tailor a strategy to your specific requirements?


Consider your life insurance goals before considering whether VUL is good for you. This type of policy allows you to assist and provide for your loved ones after you pass away while also building financial worth that you may spend in any way you see fit.

A VUL can supplement your retirement nest egg while also providing you with the life insurance coverage you require because of its cash value potential. Visit the Protective Learning Center for further information on different types of life insurance, including universal life and indexed universal life.