What is Variable Universal Life Insurance?

Clifford PendellWritten by Clifford Pendell
Louis LopesReviewed by Louis Lopes, CLU ChFC
Are you searching for the best permanent life insurance policy?

Variable universal life insurance is not for the faint of heart, but for the financially-savvy, it can provide lifetime coverage and the potential to build a sizeable cash value in the right market conditions.

Before deciding on which type of policy is best for your situation, it’s important to understand the risks associated with variable universal life insurance.

This insider’s guide explains the components of VUL insurance and the trade-offs of choosing a variable universal life insurance policy over other types of permanent life insurance. Before purchasing any form of life insurance, it’s always best to consult with an expert that can advise you of your options.

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What Is A Variable Universal Life Insurance Policy?

Variable universal life insurance or, VUL insurance, is a form of permanent life insurance that includes a cash value component, investment options, an adjustable death benefit, and flexible premiums. The key elements of a VUL policy are further explained below:

  1. Cash Value – Cash value is the money within a life insurance policy that accumulates over the policyholder’s lifetime. The cash value money grows tax-free and can be utilized by the insured during their lifetime. However, accessing this money may impact the policy’s death benefit.
  2. Investment Options – VUL policyholders have the flexibility to choose where to invest their cash value through the policy’s subaccounts. Most VUL providers offer a variety of investment options, including bonds, ETFs, money markets, mutual funds, stocks, and guaranteed returns with fixed-interest.
  3. Adjustable Death Benefit – Some VUL policies allow the policyholder to modify their policy’s death benefit. This can be achieved by paying additional premiums, adjusting the cash value, or modifying the policy’s guaranteed protection or premium payment periods.
  4. Flexible Premiums – Unlike other types of life insurance, VULs offer flexibility in premium payments. Policyholders can increase or decrease their policy’s death benefit by adjusting the premiums, providing additional flexibility for the policyholder if their situation or needs change. However, it’s important to note that increases your policy’s death benefit requires approval.

Because of the complexity of variable universal life insurance, it may not be suitable for everyone. However, in specific situations, it can be the most advantageous policy available. It’s important for individuals considering variable universal life insurance to thoroughly understand its risks and benefits.

Working with an independent agent that offers a variety of life insurance products is your best option. For a free consultation with one of our experts, call us at 855-247-9555. Our agency offers a variety of permanent life insurance solutions, and we represent more than 50 providers.

What is the Downside of Variable Universal Life Insurance?

Variable universal life insurance presents more risk than most types of life insurance with guaranteed rates and coverage. Unfavorable market conditions can have an adverse impact on your policy, and if your policy’s cash value dissolves, you could even lose your coverage.

However, if you understand the risks involved, and take the time to periodically review your policy, these issues can be minimized or avoided. It’s also important to have ample savings or income if you need to overfund your policy due to poor market performance.

In addition, variable life insurance is more expensive than other forms or life insurance like term insurance that does not provide permanent coverage or build a cash value. To accumulate cash value, the policy needs to collect more than the cost of the life insurance so the excess funds can be invested.

Which is Better Whole Life or Variable Universal Life?

While both whole life and variable universal life offer permanent life insurance protection, variable universal life insurance does not offer the same guarantees as whole life insurance. With whole life insurance, your premiums and your policy’s death benefit are guaranteed not to change.

While there is considerably more risk with VUL insurance, it also has the potential for greater returns. According to Motley Fool, the average rate of return on a whole life insurance policy is only 1.5%, while some VUL providers advertise claims of more than 8%.

Determining which type of coverage is best for an individual depends on a variety of factors, which is why you should always consult with an expert before deciding. Our agency works with 63 top-rated life insurance providers, and we offer a variety of whole life and universal life insurance products.

Whole Life vs Variable Universal Life


Whole Life InsuranceVariable Universal Life
Guaranteed PremiumsYesNo
Level Death BenefitYesYes, but can be modified
Lifetime ProtectionYesYes
Flexible PremiumsNoYes
Guaranteed ReturnsYesNo

Pros and Cons of Variable Universal Life Insurance

With a VUL policy, you can accumulate cash value faster than with other forms of permanent life insurance, such as whole life. This presents great opportunities for a financially savvy investor. However, the downside is that VULs come with more risk, and your investments are not guaranteed to perform well.

In fact, if your investments perform poorly enough, your VUL policy could become underfunded. If this happens, the policyholder will need to increase their monthly premiums to keep their coverage active. For retirees on a fixed income, this can spell disaster and even result in their policy lapsing.

Advantages and Disadvantages of VUL Comparison Chart

ProsCons
Cash Value ComponentInvestment Risk
Flexible PremiumsHigh Management Fees
Greater Growth PotentialRisk of Increasing Premiums

FAQs about Variable Universal Life Insurance

Here are some common questions we receive about VUL insurance:

1. Will my Variable Universal Life Insurance premiums increase with age?

Unlike other forms of life insurance, universal life insurance premiums are not guaranteed. While some policyholders may not see any increases to their premiums, the majority will see a rise in the cost of their insurance as they get older.

2. Does Variable Universal Life have a guaranteed death benefit?

VUL insurance does not offer a guaranteed death benefit unless the insured pays an additional fee. Unlike other forms of permanent life insurance, these policies have an adjustable death benefits and premium payments that can fluctuate based on market conditions.

3. Who should avoid Variable Universal Life insurance?

Due to its volatility, variable universal life insurance should be avoided by anyone without ample savings. If you do not have enough money set aside to cover your expenses for at least 6 months, we recommend focusing on your short-term savings before buying a VUL.

4. Can you cash out a Variable Life Insurance policy?

Yes, a policyholder can remove the cash value from their variable life insurance policy at any time, but doing so will terminate your life insurance policy. You can also borrow up to 90% of your policy’s cash value in the form of a loan, but this amount must be repaid with interest.

5. Are VULs a good investment?

Every investment involves a degree of risk. While some individuals may view Variable Universal Life (VUL) policies as a promising investment opportunity, individual outcomes can differ, and there are no guarantees. This why insurance professionals typically do not recommend VUL insurance for individuals who are not comfortable with risk or are living on a tight budget.

How We Can Help

JRC is an independently owned agency that offers a variety of permanent life insurance solutions. Representing over 50 companies, our experts can match potential clients with the best policy available. Our consultative services are completely free, with no added cost for working with us.

Give us a call today at 855-247-9555 and one of our experts will help you evaluate your options so you can make an informed decision. We’ve helped thousands of families and businesses with their life insurance needs, and we can help you too!

Written by:

Clifford Pendell

Clifford Pendell

Managing Partner and Co-founder

Cliff is a licensed life insurance agent and one of the owners of JRC Insurance Group. He has helped thousands of families of businesses with their life insurance needs since 2012 and specializes with applicants who are less than perfect health. In his spare time he enjoys spending time with family, traveling, and the great outdoors.

Expert reviewed by:

Louis Lopes

Louis Lopes, CLU ChFC

Chartered Life Underwriter, Licensed Life and Health Agent

Louis has been in the insurance business for over 30 years. He specializes in “high risk” cases as well as more complex coverages for long term care, disability, and estate planning.

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