A Guide to Variable Life and Variable Universal Life Insurance


Buyers of variable and universal life insurance need to make wise investments. Both the risks and the rewards are high.

Variable universal life insurance and variable life insurance can be considered investment products that have a life insurance twist. These products are for:

  • You should be attentive to your investments.
  • In its early years, a policy can be funded heavily.
  • Willing to take on stock market risk as part of their life insurance.

Variable life and variable universal live offer the greatest potential growth, but also carry the highest risks.

What is “variable” life insurance?

Variable life insurance, a type permanent insurance policy that pays a fixed amount when you die, is a type.

Variable universal life insurance (also known as VUL) offers the same flexibility in its death benefit and adjustable premium payments.

Both types of insurance depend on mutual fund-like investments you choose. That means more risk and more potential for growth compared with other permanent insurance options, like whole life or universal life insurance.

Variable and universal life insurance: Investing

Variable life and universal life policies, like all permanent insurance, come with a cash account that is funded by premium payments. After you send in a check and pay the premiums, your insurance cost and any other fees are deducted and the remainder is deposited into your cash account.

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You can invest the cash however you like with any “variable” insurance policy. You will be informed by your insurance company about your options and can then choose the investment strategy that suits you best.

These investments will increase your death benefit to your beneficiaries if they do well. The insurer will pay the minimum guaranteed death benefit if you haven’t made all required premium payments. Variable universal products don’t often come with a guaranteed-death benefit.

Before you make a decision to purchase either variable or permanent life insurance, be sure to fully understand the policy structure and risks. With any permanent life insurance purchase, it’s always helpful to consult a fee-only financial planner who can help you understand all the financial implications of a policy.

Variable and universal life insurance differs

Variable life insurance as well as VUL have a variable death benefit. How well you invest your cash account will determine the amount they pay out. Other traits they share include:

  • You have control over the investments you make.
  • Capital market rates without caps
  • Increased reliance upon your investment experience.
  • There is a chance that your investments will lose value.
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Although there are some similarities, VUL and variable life are two different products. Variable life is closer to whole life insurance, while VUL is closer to universal life insurance.

Variable universal life insurance in a glance

Variable universal insurance allows owners to have more control over their life insurance products than other types. Variable universal life is more popular of the two options. However, it isn’t the most popular option. VUL accounted for just 7% of U.S. premium life insurance sales at the beginning of 2020. VUL’s small share of U.S. life insurance premiums is due to one simple truth: “variable” insurances don’t work for most people.

These products are for investors who can afford higher-risk life insurances. Buying term, whole or universal life insurance will make buyers more comfortable and help them sleep better.

Variable life offer:

  • Adjustable premium payments.
  • There is no guaranteed death benefit unless you pay a fee.

VUL has its benefits, but also its downsides. With few guarantees, you’ll be responsible for your performance. You can end up owing more or losing coverage if you make poor decisions.

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Variable life insurance in a glance

Variable life insurance lets you set a minimum death benefit and can pay more depending on your investments. Although it is less common than variable universal life insurance, you can still find policies.

Variable life insurance:

  • Fixed premium payments for the entire policy’s life.
  • More death benefit guarantees.

Variable life insurance appeals to investors who are concerned about getting more out of their life insurance than just a death benefit, but who like the regularity of premium payments offered in whole life insurance policies.

Variable universal life and variable-life insurance have many benefits

Variable life and VUL give you greater control over your investments, and offer higher potential returns than other types of life insurance. Variable options are a great option for people who view life insurance as both protection and investment.

Variable universal life offers the best life insurance flexibility and control. Variable universal life allows you to adjust your premiums, increase or decrease your death benefits, and can put your cash into many investment options or fixed-rate products.

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Variable and universal life insurance has its drawbacks

Variable life and VUL combine both an investment and insurance policy. Federal law requires that people selling variable policies must be registered to trade securities, stocks and the like. This should be enough to tell you that variable products are more complicated than their vanilla counterparts.

This also highlights market risks associated with these policies. You could lose all value in your cash account if the market does not perform well. People prefer more control and greater guarantees. For instance, indexed universal life, which pays interest based on stock indexes, has been gaining momentum for the last three years.