Variable Universal Life Insurance (VUL)

Shawn Plummer

CEO, The Annuity Expert

Variable universal life insurance combines the benefits of both universal life insurance and variable life insurance.

Variable universal life insurance is a type of life insurance that you keep paying for and it never stops. When you die, your family will get money. Some types of life insurance have a cash value that increases with each payment and they earn interest.

The cash value of VUL is invested in mutual funds, stocks, and bonds. If the interest on it is higher than the cost of insurance, then you can use some of it to help pay for your insurance premiums.

If you have a lot of money and have used up other options, Variable Universal Life Insurance might be a good option. It gives you more control over the investment, but it is much more expensive than term life insurance. If you invest in a Variable Universal Life Insurance policy, your beneficiaries would also get some money from the insurance company.

How does variable universal life insurance work?

VUL combines features that include:

  • A flexible premium life insurance policy is like a savings account. You earn interest, but your premiums can change. If the rate goes up, then your premiums will too.
  • If you buy variable life insurance, your premiums can go into investments. You can choose which investments to put your money in. If the investment is not good enough, the policy will lapse when the cash value goes to zero.

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Variable Universal Life Insurance

Pros and Cons of Variable Universal Life Insurance

Pros of variable universal life insurance

A variable universal life insurance policy might not be the best choice for everyone, but it could be a good decision if you want to buy a permanent policy or if you have a lot of money. Here are some reasons that VUL might be right for you:

  • You have a lot of money and want to save more. You cannot contribute to certain retirement accounts when you have a certain amount of money. Sometimes, people have maxed out their 401(k) contributions for the year too, so they can also use a variable universal life insurance policy which gives them an additional tax-deferred savings.
  • If you are already very wealthy, it is best to have a tax-free inheritance for your beneficiaries. You can do this by being careful in what you own. If your assets are worth less than $11.38 million, you will not need to pay taxes when passing on an inheritance or estate tax when someone dies with asset above that.
  • A variable universal life insurance policy is cheaper than other permanent policies. You could pay less for the variable universal life insurance, which has cash value that may outperform other policies like whole life insurance, if you are set on buying permanent life insurance.

Cons of variable universal life insurance

Most people probably shouldn’t buy a variable universal life insurance policy. People would be better off buying a traditional term life policy and investing separately. Here is why:

  • Variable Universal Life Insurance is more expensive than Term Life Insurance. Although it can sometimes be cheaper, it will always be more expensive than Term Life Insurance.
  • There are many fees for this. You may have to pay a mortality and expense fee, fees to the mutual funds that you invest in, and insurance-related fees. If you want to withdraw money or take out a loan with your cash value, there will be more fees.
  • Your payments on a policy are not a clear investment.

Alternatives to variable universal life insurance

VUL insurance may not be right for you if you want to make sure that your family will have money when you die. If this is the case, life insurance with a cash value might work better than VUL because it grows at a smaller but more stable fixed rate.

If you are worried about how to pay for funeral expenses, a final expense policy might be what you need. But if you want something with less cost and more straightforward insurance, a term life insurance policy is the best type of life insurance for most people.

  • Whole life insurance: With whole life insurance, you are covered from the moment you sign up. You will pay a high premium early, but it won’t depend on how much money you have.
  • Final expense life insurance: Final expense life insurance is for older people who are concerned with how to pay the end-of-life costs, including any debts that they have cosigned for. It’s cheaper than most other types of life insurance. You do not need to do a medical exam when you apply.
  • Term life insurance: Term life insurance is less expensive than variable universal life insurance. You might be rich and have more money than you can spend on your investments, but with term insurance, you can save on insurance and also on investing your money in a mutual fund.

Find The Best Life Insurance Coverage At The Cheapest Cost!

Compare life insurance quotes from 25 companies in seconds. Then, apply for coverage in less than 10 minutes.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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