Variable Universal Life Insurance is also referred by some as VUL. This particular insurance policy can only be sold by life insurance agents that are licensed with certain security licenses because the policy has a securities componenet. VUL’s are designed to build cash value. That cash value can be invested in a wide variety of accounts that are separate. It’s a bit like investing in mutual funds because the contract owner gets to make the choices where the cash value is invested.
If you have the chance go to the variable life insurance page and read how this insurance policy works, please do so. This gives you a basis as to why there is a variable component in the name of this type of policy. The contract owner has the option of making investments in separate accounts whose values vary because they are invested in some type of stock and/or bond market (a security).
If you go to the universal life insurance page you will read about the universal aspect of this policy. It has flexibility for the owner when making premium payments. These premium payments can vary from nothing in a given month, up to the Internal Revenue Code for life insurance maximums in a given month. Though this is a type of permanent life insurance policy, the flexibility of the universal policy is in direct contrast to whole life insurance that has a fixed premium payment that, if missed, typically leads to a lapsed and canceled policy.
As long as there is enough cash value in the policy to pay the costs of insurance the VUL acts just like other types of permanent life insurance, because the death benefit will be paid if the insured dies at any time. Unlike whole life insurance there is no endowment age, which is the age the cash value equals the death benefit amount. That is typically either 95 or 100.
This is actually an advantage over the standard whole life policy, as long as the investments perform well. Though it is possible, though not guaranteed, for the investments made in the separate accounts to out-perform the general account of the insurance company. This means the contract owner can potentially get a higher rate-of-return than the fixed rates-of-return typical for the more traditional whole life policy. So if you get the perfect combination throughout the years with no endowment age (continually increasing death benefit and a high rate-of-return earned in the separate accounts of a VUL policy) this could result in higher value to the owner or beneficiary than that of a whole life policy with the same amounts of money paid in as premiums.
However, if the investments don’t perform well, you could end up with significantly lower cash value or no cash value in the policy. You will need to seek out a qualified life insurance agent with a securities license to help you with this type of policy. There are some tax and other benefits that might be perfect for your situation. However, make sure this to the right policy for you before you purchase.