Variable Universal Life Insurance (VUL)

Shawn Plummer

CEO, The Annuity Expert

If you’re like most people, you have many questions about life insurance. What is it? How does it work? What are the different types? And, perhaps most importantly, how much do you need? This guide will discuss one specific type of life insurance: variable universal life insurance. We’ll talk about what it is, how it works, and why you might want to consider getting it.

What is Variable Universal Life Insurance?

Variable universal life insurance is a type of variable life insurance that 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. And with any investment-based product, you can lose money.

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

Best Variable Universal Life Insurance

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 decreases to zero.

Variable Universal Life Insurance Calculator

Use our VUL calculator to shop for quotes from the best life insurance companies and compare rates from permanent and term coverage, including whole life and term 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 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. Unfortunately, you cannot contribute to certain retirement accounts when you have a certain amount of money. Sometimes, people have maxed out their 401k contributions for the year, so they can also use a variable universal life insurance policy that gives them 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 assets above that.
  • A variable universal life insurance policy is cheaper than other permanent policies. Therefore, you could pay less for the variable universal life insurance, which has a 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. Instead, 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. For example, you may have to pay a mortality and expense fee, fees to the mutual funds you invest in, and insurance-related fees. In addition, 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 straightforward investment.
Variable Universal Life Insurance Calculator

Alternatives to variable universal life insurance

VUL insurance may not be suitable for you if you want to ensure that your family has 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 lower 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 less expensive and more straightforward insurance, a term life insurance policy is the best type 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 concerned with how to pay end-of-life costs, including any debts they have cosigned for. It’s cheaper than most other types of life insurance. In addition, 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. For example, you might be rich and have more money than you can spend on your investments, but you can save on insurance and invest your money in a mutual fund with term insurance.

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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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