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Variable Universal Life Insurance (VUL)

What is 'Variable Universal Life Insurance - VUL'

Variable universal life insurance (VUL) is a form of cash-value life insurance that offers both a death benefit and an investment feature. The premium amount for variable universal life insurance (VUL) is flexible and may be changed by the consumer as needed, though these changes can result in a change in the coverage amount. Next Up Variable Life Insurance Policy Universal Life Insurance Adjustable Life Insurance Whole Life Insurance Policy

Explaining 'Variable Universal Life Insurance - VUL'

The investment feature usually includes sub-accounts, which function very similarly to mutual funds and can provide exposure to stocks and bonds. This exposure offers the possibility of an increased rate of return over a normal universal life or permanent insurance policy.

How Variable Universal Life Insurance Works

Like universal life insurance, variable universal life insurance combines a separate savings component with a separate death benefit component, allowing for greater flexibility in managing the policy. Premium payments are paid into the savings component, which, for variable universal life insurance, consist of separately managed accounts also referred to as sub-accounts. Each year, the life insurer takes what it needs to cover mortality and administrative costs. The rest remains in the separate accounts.

Transfer of Investment Risk

In a whole life policy, the life insurer assumes the investment risk by guaranteeing minimum cash value growth. By separating the savings component and the death benefit component, the life insurer transfers the investment risk to the insured, providing the opportunity to earn a higher rate of return. The insured assumes the risk that the separate accounts may generate negative returns, which reduces the cash value available to pay expenses. This might require that the insured make additional premium payments. This transfer of risk allows the insurer to charge a lower premium than would be charged on a whole life policy.

Sub-Accounts

The separate accounts are structured similar to a family of mutual funds, with an array of stock and bond accounts along with a money market option. Policyholders are allowed to transfer between the accounts up to a certain number of times per year, typically four. In addition to the mortality and administration fees paid by the policyholder each year, the separate accounts deduct management fees that can range from 0.05% to 2%.

Cash Value

The cash value inside a variable universal life policy is allowed to grow tax deferred. Policyholders can access their cash value by taking a withdrawal or by borrowing funds. However, if the cash value falls below a certain level, additional premium payments must be made to prevent the policy from lapsing.


Further Reading


Understanding and managing VUL
search.proquest.com [PDF]
… insurance was first brought to the marketplace in the United States by the Equitable Life Assurance Society … They represent the “liquidity“ of a variable universal life investment … the wisdom of paying life in- surance costs are: 1. Does the policyowner need/want the life insurance …

Understanding the policy details of no lapse guarantee and VULUnderstanding the policy details of no lapse guarantee and VUL
heinonline.org [PDF]
… insurance was first brought to the marketplace in the United States by the Equitable Life Assurance Society … They represent the “liquidity“ of a variable universal life investment … the wisdom of paying life in- surance costs are: 1. Does the policyowner need/want the life insurance …

The optimal investment strategy through variable universal life insuranceThe optimal investment strategy through variable universal life insurance
www.jstor.org [PDF]
… insurance was first brought to the marketplace in the United States by the Equitable Life Assurance Society … They represent the “liquidity“ of a variable universal life investment … the wisdom of paying life in- surance costs are: 1. Does the policyowner need/want the life insurance …

Sheltering variable life policies against market stormsSheltering variable life policies against market storms
search.proquest.com [PDF]
… insurance was first brought to the marketplace in the United States by the Equitable Life Assurance Society … They represent the “liquidity“ of a variable universal life investment … the wisdom of paying life in- surance costs are: 1. Does the policyowner need/want the life insurance …

Use and Misuse of Life Insurance in Retirement PlanningUse and Misuse of Life Insurance in Retirement Planning
heinonline.org [PDF]
… insurance was first brought to the marketplace in the United States by the Equitable Life Assurance Society … They represent the “liquidity“ of a variable universal life investment … the wisdom of paying life in- surance costs are: 1. Does the policyowner need/want the life insurance …

Factors influencing households' demand for life insuranceFactors influencing households' demand for life insurance
mospace.umsystem.edu [PDF]
… insurance was first brought to the marketplace in the United States by the Equitable Life Assurance Society … They represent the “liquidity“ of a variable universal life investment … the wisdom of paying life in- surance costs are: 1. Does the policyowner need/want the life insurance …

Life insurance as a retirement income toolLife insurance as a retirement income tool
papers.ssrn.com [PDF]
… insurance was first brought to the marketplace in the United States by the Equitable Life Assurance Society … They represent the “liquidity“ of a variable universal life investment … the wisdom of paying life in- surance costs are: 1. Does the policyowner need/want the life insurance …

College Education Planning: Indexed Universal Life Insurance versus 529 College Saving Plans.College Education Planning: Indexed Universal Life Insurance versus 529 College Saving Plans.
search.ebscohost.com [PDF]
… insurance was first brought to the marketplace in the United States by the Equitable Life Assurance Society … They represent the “liquidity“ of a variable universal life investment … the wisdom of paying life in- surance costs are: 1. Does the policyowner need/want the life insurance …


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