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Variable universal life insurance

A permanent life insurance policy that gives you freedom and flexibility — though it can be complicated and expensive.

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Variable universal life insurance is one of the most adjustable products available. It’s a permanent policy that combines the flexibility of a universal policy with the investment options of a variable policy.

What is variable universal life insurance?

Variable universal life insurance (VUL) is a hybrid policy that combines elements of a variable life and universal life policy.

The basic features of a VUL policy are:

  • Tax-deferred cash value growth
  • Ability to choose sub-accounts to invest in
  • Ability to change death benefit
  • Ability to change premiums

How variable universal life insurance works

Variable life insurance is a type of permanent policy, which means it will stay in force for as long as the premiums are paid.

Your premiums are first used to cover the costs of the policy and commissions. The remaining premium money goes into the cash value part of your policy.

Unlike a whole life policy, in which the insurance company decides where to invest this cash value, a variable universal life policy lets you decide where to invest the money — with limitations. The company presents you with a number of subaccount options that you can invest in. This is the “variable” part of the VUL policy.

The “universal” aspect allows you to adjust the amount and frequency of your premiums, and change your death benefit. For example, you can choose to pay your premiums quarterly instead of monthly, or use your accumulated cash value to cover your premiums.

The goal of a VUL policy is to grow cash value that can be taken out and used for various life events, such as paying off a mortgage, covering medical expenses or traveling the world.

And if you die prematurely or don’t use all of your cash value, your insurer will still pay a death benefit to your beneficiaries.

Is variable universal life insurance worth it?

Variable universal life insurance is potentially worth the extra premium, but only in certain circumstances. It requires a lot of monitoring, so it’s not the best choice for those who prefer a hands-off approach.

A variable universal life insurance policy could be a good fit for someone with prior investment experience. It might also suit wealthy individuals with complex financial needs, such as estate planning.

Pros and cons of variable universal life insurance

Pros

  • Permanent. You’ll have lifelong coverage no matter what, as long as you pay the premiums.
  • Flexible. This policy allows you to adjust your premiums and your death benefit. Flexibility like this can help you keep your policy even as life events change your situation and financial needs.
  • Payoff potential. The cash value growth can be a real asset down the road. The investment options are also in your hands, giving you greater freedom and responsibility than standard policies.
  • Tax benefits. The cash value grows on a tax-deferred basis, while the death benefit is paid out tax-free.

Cons

  • Complicated. A variable universal life insurance policy is a fairly complex life product. You’ll need a thorough understanding of how it works to maintain the policy and make the most of its features.
  • Requires consistent monitoring. You’ll need to keep track of how your cash value subaccounts are performing, especially if you plan to use the cash value to help pay the policy’s premiums. If there isn’t enough cash value to pay the premiums, then your policy could lapse.
  • Expensive. VUL policies are much more expensive than a term life insurance policy and are usually more expensive than a standard whole life policy as well. Unless you have a clear plan for the policy, it may not be worth the extra cost.
  • Limited investment options. Even though you can choose which subaccounts to invest the cash value, you’ll have more limited choices than you would if you simply invested the money. This limitation could turn away the wealthy, experienced investors this policy is designed for.

Alternatives to variable universal life insurance

A popular alternative to a variable universal life policy is a standard whole life policy. This policy offers lifelong coverage and builds cash value over time. However, the premiums are fixed, and your insurance company chooses where to invest your cash value.

If you just want a simple life insurance policy without any cash value, you can look into term life insurance. This policy lasts for a set period of time — usually between 10 and 30 years. The premiums stay the same for the life of the policy, and if you pass away during the term, your beneficiaries will receive a death benefit.

Compare life insurance companies

Data indicated here is updated regularly
Name Product Issue Age Minimum Coverage Maximum Coverage Pays Dividends
Policygenius
18 to 85
$50,000
$100,000
Varies by provider
Compare affordable quotes from 12+ A-rated life insurance companies side-by-side.
Quotacy
to
Get a quote within minutes from more than a dozen insurers.
LeapLife
18 to 75
$100,000
$5,000,000
Varies by provider
Apply for a simple instant-decision policy free of charge. Compare quotes from multiple A-rated carriers.
Navy Mutual
18 to 80
$10,000
$1,000,000
Yes
Affordable life insurance for active duty, reserve, and retired United States military service members. Get a free quote online.
JRC Life Insurance
25 to 80
$25,000
N/A
Varies based on provider
Quickly get a quote for coverage with this marketplace, which compares term & whole life insurance policies from 45+ carriers.
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Compare up to 4 providers

Bottom line

A universal variable life policy is one of the most flexible products on the market. You can adjust your premiums and death benefit, and decide where to invest your cash value. However, it’s complicated, expensive, and requires you to monitor your policy to make sure it grows.

To find the best policy for your family, compare life insurance companies.

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