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Life Insurance

Variable Universal Life Insurance: Understanding The Basics

Variable universal life insurance provides lifelong coverage and living benefits.

If you’re looking for lifetime insurance coverage, variable universal life insurance may be a good option for you.

What Is Variable Universal Life Insurance (VUL)? 

Variable universal life (VUL) is a type of permanent life insurance that provides continued coverage throughout the lifetime of the insured.

Variable universal life insurance has three main features: flexible premiums, flexible death benefits, and cash value. What makes variable universal life stand out from a traditional life insurance policy is that you have more control of where your cash value is being invested. 

How Does Variable Universal Life Insurance Work? 

Variable universal life insurance offers the same features as standard universal life insurance such as permanent life insurance coverage and flexible premiums. If there’s enough cash value in your policy, you could decide to have the policy pay for itself. Or, if an emergency pops up, you may withdraw or take out a loan from your cash value.

What sets the VUL apart from other permanent life insurance policies such as whole life and universal life, is the investments of the cash value, offering 20 to 30 different options of how your cash can grow. For example, your cash value can be invested in: 

  • Index Funds
  • Mutual Funds
  • Bonds
  • Stocks

It’s important to note that although your cash value can grow more quickly, you’re at greater risk to lose your cash value compared to a standard universal life policy. If your cash value decreases, you may experience a decrease in your death benefit

Death Benefit Flexibility 

The death benefit is guaranteed to be paid out tax-free to your beneficiaries when you pass. During the time that your variable universal life policy is active, you have the choice to lower or increase your death benefit based on your insurance needs. An adjustment of the death benefit will change your premiums. If you choose to increase your death benefit, a medical exam may be needed.

The death benefit may also stay fixed or variable. If fixed, your death benefit will stay the same. If it’s a variable death benefit, that means that your beneficiaries will get your face amount and the policy’s cash value at the time of your death.

Cash Value Investment Variety 

A variable universal life policy has subaccounts where your cash value is allocated. As stated above, your cash value may be invested in different options such as stocks, bonds, mutual funds, and index funds to diversify your portfolio. You, as the policyholder, have the option to choose how much of your cash value can be invested in a specific allocation.

When investing with a variable universal life policy, you’re able to invest and transfer funds between investments tax-free. The downside is the increased risk of loss because you’re in the market. If your cash value investments underperform, your death benefit could lessen.

Variable universal life insurance allows you to withdraw and borrow a loan against the cash value. If the amount borrowed isn’t repaid on time, you could face a tax liability and a reduced death benefit. 

Adjustable Premium Pricing

A key feature with variable universal life insurance is that you can increase or lower premiums at any time. You may also stop or skip payments when you build up enough cash value for the policy to pay itself. This could be beneficial if you run into an unexpected emergency or if you want to lessen your monthly expenses. 

Advantages of Variable Universal Life Insurance

Higher Returns Compared To Other Permanent Life Insurance Policies

With more investment options available to you, a VUL could provide more room for higher returns compared to traditional and universal life insurance. This is a key component when considering a VUL policy if you actively manage your investments and are comfortable with investing your money for greater returns. 

Control Over Policy 

With a variable universal life policy, you have a higher level of control over your: 

  • Premiums
  • Death benefit
  • Investments

The policy is flexible to meet your current needs whether they stay the same or change over time. You can allocate your investments depending on how aggressive or conservative you are in the market. If you’re not as risky when it comes to investing, then you may have the choice to invest in safer options compared to a riskier person. No matter what, you’re able to change your allocations at any time. 

Disadvantages of Variable Universal Life Insurance


Compared to other life insurance policies such as term life, VUL is more expensive as the policy has features of cash value, multiple investment options, and permanent life insurance coverage. Term life, in comparison, is less expensive because it expires after a set period of time.

Investment Risk 

A variable universal life insurance policy is one of the more risky policies compared to other life insurance policies. It lacks a guaranteed rate of return so you may lose a fair amount of money. If your investments perform poorly, both your cash value and death benefit could decrease as well.


Variable universal life insurance is no exception to fees. Many of the fees come from the VUL’s subaccounts, and one of the reasons a VUL is more expensive than other life insurance policies is because you pay a management fee on top of your insurance premiums. Since it’s your cash value that’s being directly connected to the market, you could end up losing a portion of your cash value if the market underperforms. 

Who Should Consider Variable Universal Life Insurance? 

Variable universal life is a complicated and complex policy that isn’t for everyone. The VUL could be beneficial to you if you: 

  • Want to control your coverage at any time
  • Like having the ability to adjust your policy at any given time 
  • Have no issue taking risks with investments
  • Enjoy taking an active role and are comfortable in choosing investments

Alternatives To Variable Universal Life Insurance 

Variable universal life is not as simple as your beneficiaries receiving a death benefit after you pass. There could be stocks, bonds, and mutual funds involved in your life insurance that could get confusing. With the market so volatile, a VUL is unpredictable with its cash value and death benefit changing constantly.

There are other alternatives to variable universal life such as term or whole life insurance. If you’re looking for something that will cover you in between jobs or for a specific set of years, term life could be beneficial for you. Or, if you want permanent coverage with a locked-in premium, whole life is another alternative. Whole life has cash value like variable universal life insurance, but it grows slower as the main goal for it is to provide you with permanent coverage.