Variable Universal Life Insurance (VUL)

What is variable universal life insurance (VUL)?

Variable life insurance is a permanent life insurance policy that combines life insurance protection with an investment component. Here’s are it’s two components:

• Life Insurance Protection: Like other life insurance policies, VUL pays a death benefit to your beneficiaries upon your passing.
• Investment Component: A portion of your premiums goes into a cash value account that you invest in sub-accounts, similar to mutual funds. The performance of these sub-accounts determines the growth (or decline) of your cash value

How does variable life insurance work?

With VUL, you pay premiums to your insurance company. A portion goes towards the death benefit, while the remaining amount is allocated to your cash value account. You choose how to invest this cash value in a variety of sub-accounts offered by the insurance company, These sub-accounts may invest in stocks, bonds, or a combination of both.

The key thing to understand is that the growth of your cash value depends on the market performance of your chosen sub-accounts. Strong markets can lead to significant growth, while downturns can cause your cash value to decrease.

Things to know before you invest in a VUL policy

• Risk Tolerance: VUL is a riskier product compared to traditional life insurance due to the investment component. If you’re uncomfortable with market fluctuations, VUL might not be the best choice.
• Investment Knowledge: You’ll need a basic understanding of investing to make informed decisions regarding your sub-account allocations.
• Long-Term Commitment: VUL is designed for a long-term horizon. Early withdrawals may come with surrender charges that erode your cash value.

Benefits of variable life insurance

1. Cash Value Growth Potential: Your cash value has the potential to grow significantly over time through successful investments.
2. Tax Advantages: The cash value in your VUL policy grows tax-deferred, and qualified withdrawals from the account may be tax-free.
3. Death Benefit: Your beneficiaries receive a death benefit regardless of the cash value’s performance.

Risks of VUL

Just like any other investments, VUL have its own risk. I break these risk into 2 and these are:

• Market Fluctuations: The value of your cash value can fluctuate with the market, potentially decreasing your death benefit if it falls below a certain threshold.
• Fees and Expenses: VUL typically comes with higher fees compared to term life insurance due to the investment management component.

Features of variable life insurance

Flexible Premiums: Some VUL policies offer flexibility in adjusting your premium payments within certain limits.

Policy Loans: You may be able to borrow against your cash value, but this reduces the death benefit and accrues interest.

Death Benefit Riders: Additional riders can be attached to your policy to customize your coverage, such as increasing the death benefit or adding an accelerated death benefit for critical illnesses.

What are variable life insurance fees and expenses?

There are several fees associated with VUL policies, including:

• Mortality Expenses: The cost of providing the death benefit.
• Investment Management Fees: Fees charged by the insurance company for managing the sub-accounts.
• Sales Charges: Commissions paid to the agent who sells you the policy.
• Administrative Fees: Fees for policy maintenance.

It’s crucial to understand these fees and their impact on your overall return before investing in a VUL policy.

How to get variable life insurance

 If you’re interested in VUL, here’s what you need to do:

1. Assess Your Needs: Consider your risk tolerance, investment goals, and life insurance needs.
2. Compare Quotes: Get quotes from insurance companies to compare rates, fees, and sub-account options.

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