Variable Universal Life Insurance | Everything You Need to Know

Doug Shaffer
Written by
Doug Shaffer
Photo of an Insurify author
Written by
Doug Shaffer
Insurance Writer
Doug Shaffer works as a content writer. He has had the opportunity to write for several national insurance carriers in the past and brings with him over six years of experience working with both business and consumer products. He enjoys being able to break down complex insurance jargon to allow consumers to fully understand their policies.
John Leach
Edited by
John Leach
Photo of an Insurify author
Edited by
John Leach
Insurance Content Editor at Insurify
John Leach is an insurance content editor who has worked in print and online. He has years of experience in car and home insurance and strives to make these topics easy to understand for everyone. He has a linguistics degree from UC Santa Barbara.

Updated April 14, 2021

Reading time: 6 minutes

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Why you can trust Insurify

Insurify is America's highest-rated insurance comparison platform. We partner with the nation's top insurance companies and are licensed as an agent in all 50 states. However, the insurance experts writing our content operate independently of our partners, and you can learn more about how we make money by viewing our advertising disclosures. Also check out reviews from over 3,000 satisfied customers, our data methodology, and our editorial standards.

Many people try to avoid conversations involving life insurance.

Regardless of the reason, the topic is often met with one of two responses—either “I don’t need life insurance” or “life insurance isn’t worth the money.” While it’s true that life insurance isn’t for everyone, there are many reasons to consider looking into life insurance products for you and your loved ones.

Among the policies available to consumers, the most popular tend to be term life insurance and whole life insurance. However, deciding between the plans is only the first step, as there are multiple options available under each umbrella.

To help you understand what opportunities are available to you, Insurify will provide you with a list of quotes from qualified insurance companies in a matter of minutes.

Many companies only cater to specific regions, but at Insurify, we take pride in helping people from New York to California. To see what you qualify for today, just fill out some basic information, and you can compare life insurance quotes from 20 companies all in one place.

What is variable universal life insurance?

To really understand what variable universal life insurance is, it is important to be familiar with a couple of common terms that pertain to life insurance policies. Having a basic knowledge of concepts like cash value, interest rates, and assets can help build your confidence when looking over life insurance quotes.

These three terms are typically defined as:

  • Cash Value: The portion of your policy that earns interest and could be available for you to withdraw or borrow against.

  • Interest Rates: For universal life insurance, insurers apply a fluctuating interest rate to your cash value growth.

  • Assets: Personal assets can be protected and paid off by life insurance policies.

One of the major advantages of a variable universal life insurance policy is that it combines features from two other permanent life policies— universal life insurance and variable life insurance. Below is a small guide to understanding the features of each:

  • Universal Life Insurance: With a universal life plan, your premiums can increase and decrease depending on whether your predetermined interest rate outperforms the market.

  • Variable Life Insurance: The premiums under a variable life insurance plan are constant, and you have the opportunity to choose what assets they are put toward. Should the rate of return on your investments drop too low to support the overall policy, it could result in a lapse in coverage when the cash value hits zero.

In a variable universal life plan, you will notice that you will have features from both the universal and variable policies. This type of insurance product offers a combination of flexible premiums with the option to choose what assets your premiums go toward. The plan also has a savings element that is broken into separately managed accounts known as sub-accounts.

If the assets you select are performing better than the overall cost of your insurance, then you will notice your premiums decrease while the death benefit remains the same. As you continue to experience cash value growth, you will have the opportunity to put more of it toward your premium payments for the policy death benefit.

In some cases, if you have enough value, you might be able to support the death benefit entirely with the cash value. Deciding to go this route will mean that you will need to keep an eye on your overall value to avoid policy lapses in coverage should your cash value run out.

Inversely, if the assets that your premiums go toward aren’t performing well, then you might experience an uptick in the amount you’re paying to support your death benefit coverage. You may even be forced to accept a lower death benefit than you currently have.

Who Benefits from a VUL Policy

VUL policies are often the most attractive for consumers who know how much life insurance coverage they need but want to be able to obtain more through investment gains. Since the premiums fluctuate and there is a chance of losing the cash value of the plan, variable universal life is often best for those who don’t mind a little risk.

How Variable Universal Life Insurance Works

When considering variable universal life insurance, it is important to understand the main components of the plan: the premium, the cash value, and the death benefit. The way a typical VUL plan works is that every time you make a premium payment, a percentage will go toward keeping the death benefit in place. The remainder of the premium goes toward the policy’s cash value.

Once you have cash value in your plan, you can invest it in different types of securities that resemble mutual funds. If your cash value continues to perform well, you have the option to use it for things such as increasing your death benefit, withdrawing it as cash, or even using it as collateral for a loan.

Building Cash Value

How the cash value works in a variable universal life insurance plan is unique compared to other permanent life insurance policies. Regardless of which plan you choose, you will be given a prospectus that details around 20 to 30 options you can invest in. Many of the options are comparable to mutual funds, with sets of securities that your money will be invested in.

While you have control over your investment objectives, it is important to keep in mind that there are fixed interest investment options provided by the insurer as well. There are general fees that come with this type of plan since it is managed by a financial professional, but the investment risk is lower overall.

Flexible Premiums

The cash value structure of a VUL policy allows you to have some flexibility in your premiums.

For example, if you wanted, you could pay a larger amount in premiums or use the cash value to pay the monthly fees. Typically, a life insurance company will give you a minimum or maximum premium that you have to pay, meaning that you could do any of the following:

  • Pay a portion of your premium out of pocket and fund the rest with your cash value

  • Pay all of your premium with the cash value if it is large enough

  • Pay more than your target premium in order to overfund your policy and build your investment gains more quickly.

The Death Benefit

The death benefit of a variable universal life insurance plan is normally structured in one of two ways—a level death benefit or a face amount plus cash value benefit.

In the level death benefit option, the payout is equal to the face value of the policy when you purchased it. The face amount plus cash value benefit costs more, but beneficiaries will receive both the cash value and face value of the policy.

It is important that regardless of which plan you choose, you review your policy’s overall terms. Some provide a guaranteed death benefit, while others may pay out a lower death benefit if your cash value underperforms.

Don’t forget to compare life insurance prices and policies on Insurify before buying a policy!

Pros and Cons of Variable Universal Life Insurance

Making the decision to purchase a VUL plan can be difficult if you haven’t had the opportunity to explore life insurance products before. For example, variable life insurance plans tend to be much riskier than VUL insurance plans, while universal life insurance plans won’t give you the same investment freedom that VUL plans provide.

At Insurify, we want to make sure you understand the advantages and challenges that may come with choosing a VUL insurance plan. This is why we have outlined some of the advantages and disadvantages below:

PositivesNegatives
The plan provides an income- tax-free death benefit payout to the beneficiary.Variable universal life does not offer guarantees like other products, such as term life or whole life insurance.
As long as you continue to pay the premiums, the coverage won’t expire.Policy premiums tend to be higher than comparable products.
Premium payments are flexible and may decrease throughout the policy’s life.Premiums can become more expensive throughout the life of the policy.
All gains in cash value are tax-deferred.Cash value can run out if it is underperforming.
Policyholders can obtain life insurance policy loans to access their cash value without incurring any tax hit.Policies frequently lapse because they run out of value.

Buy the Right Life Insurance for the Right Price

Making the choice to purchase life insurance is a personal decision and shouldn’t be taken lightly. Selecting a policy that not only provides for your loved ones in your absence but also gives you peace of mind is important. Insurify has made the process easy so that you can focus on what truly matters.

Insurify can quickly help you compare life insurance quotes from top life insurance companies. Once you have the results, you can determine which policy best fits your financial goals and the amount of coverage you feel comfortable with. By giving the power of choice to you, Insurify allows you to avoid working with insurance agents and make the decisions that are best for you.

VUL: Frequently Asked Questions

  • Variable universal life (VUL) insurance is one type of permanent life insurance policy available to consumers who want both protection and cash value. The VUL policy has a built-in savings component that allows for the cash value to be invested. For most of these plans, there will be a maximum and a minimum amount of investment return from the savings component, unlike other products such as a whole life insurance policy.

  • The main difference between variable universal and universal life insurance is the cash value. While both plans feature a cash component that grows with time, the way it grows is different between the two. With variable universal life insurance, there are investment options available, much like a mutual fund. The cash value with universal life insurance, however, grows based on the current interest rate set by the insurer.

  • However, for people looking to buy a permanent policy or who want to use the variable products as part of their financial strategy, the benefits of VUL far outweigh the cost of insurance.

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Doug Shaffer
Written by
Doug Shaffer

Insurance Writer

Doug Shaffer works as a content writer. He has had the opportunity to write for several national insurance carriers in the past and brings with him over six years of experience working with both business and consumer products. He enjoys being able to break down complex insurance jargon to allow consumers to fully understand their policies.

Learn More
John Leach
Edited by
John Leach

Insurance Content Editor at Insurify

Photo of an Insurify author
Edited by
John Leach
Insurance Content Editor at Insurify
John Leach is an insurance content editor who has worked in print and online. He has years of experience in car and home insurance and strives to make these topics easy to understand for everyone. He has a linguistics degree from UC Santa Barbara.