# Variable Universal Life Insurance: Understanding VUL and Its Benefits

![Variable Universal Life (VUL) Insurance](https://www.investopedia.com/thmb/g_sJR07gndtutlQB-Xt0yB1G1VI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/variable-universal-life.asp-Final-9e761a2c4e2849758b000a23464f176f.jpg)

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## What Is Variable Universal Life (VUL) Insurance?

Variable universal life (VUL) combines lifelong insurance protection with flexible premiums and cash value you can access while alive. VUL insurance lets you invest and grow the cash value through subaccounts that operate like [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp). Exposure to market fluctuations can generate high returns but may also result in substantial losses. 

VUL is [similar to variable life insurance](https://www.investopedia.com/articles/pf/07/variable_universal.asp), but unlike variable life, it allows you to change your premium payment amount. While VUL insurance offers increased flexibility and growth potential over other life insurance options, you should carefully assess the risks before purchasing it.  

### Key Takeaways

*   Variable Universal Life (VUL) insurance offers the flexibility to invest cash value in subaccounts similar to mutual funds, which can lead to higher growth but also bears the risk of substantial losses.  
    
*   VUL policies allow policyholders to adjust premium payments, offering greater control over financial contributions compared to other permanent life insurance options.  
    
*   The investment risk associated with VUL policies falls on the policyholder, as there is no guaranteed return on the cash value, and poor investment performance can lead to increased premium requirements.  
    
*   VUL policies often come with high fees, including mortality, administration, and subaccount management fees, which can affect the overall returns on the investment component.  
    
*   For individuals with high risk tolerance who want life insurance with investment potential, VUL can offer tax-deferred growth; however, it's important to compare it with other life insurance and investment options.

## Understanding the Mechanics of Variable Universal Life (VUL) Insurance

Variable universal life is a type of [permanent life insurance](https://www.investopedia.com/terms/p/permanentlife.asp) policy. It combines a [death benefit](https://www.investopedia.com/terms/d/deathbenefit.asp) with a savings component, called cash value. This coverage can last your entire life so long as you continue paying for the insurance costs. A VUL lets you adjust how much you pay into the policy each year, the same as traditional [universal life insurance](https://www.investopedia.com/terms/u/universallife.asp).

You must pay enough each year to cover the ongoing insurance costs of your policy. The insurer deducts this amount from your premiums. The remainder of your premiums will go toward your policy's cash value.

### Managing Investment Risk and Optimizing Cash Value in VUL Insurance

In a VUL, you pick how to invest your cash value between a variety of subaccounts. Your interest and future growth depend on how well your investments perform. If the investments do well, your cash value will grow more quickly. The growth of the VUL insurance policy’s cash value is tax-deferred. Policyholders may access their cash value by taking a withdrawal or borrowing funds.

If your investments do poorly, your cash value will not grow as quickly. It is possible to lose money with a VUL. If you face significant losses, you may need to make larger premium payments to cover the cost of your life insurance and rebuild your cash value. Otherwise, your policy would lapse, and you would lose insurance protection.  

> **Important**
>
> Unlike whole life insurance, the life insurer transfers the investment risk of the VUL cash value to you.

### Navigating VUL Subaccounts: Investment Options and Fees

The separate subaccount for a VUL is structured like a family of mutual funds. Each has an array of stock and bond accounts, along with a [money market](https://www.investopedia.com/terms/m/moneymarketaccount.asp) option. Some policies restrict the number of transfers into and out of the funds. If a policyholder has exceeded the number of transfers in a year, they would need to pay a fee for additional transfers and changes to their investment strategy.

In addition to the standard administration and mortality fees paid by the policyholder each year, the subaccounts deduct management fees that can range from 0.5% to 2%. Because the subaccounts are securities, the life insurance representative must be a licensed producer and registered with the [Financial Industry Regulatory Authority (FINRA)](https://www.investopedia.com/terms/f/finra.asp) to sell a VUL.  

## Evaluating the Advantages and Drawbacks of Variable Universal Life Insurance

A VUL gives you control over how to invest your cash value. You can pick the subaccounts that best fit your risk tolerance and investment objectives. If your investments do well, you can grow your cash value more quickly with a VUL versus other types of permanent life insurance. Since a VUL is a form of universal life, you can also adjust how much you pay into the policy each year to fit your budget.

A VUL does have risks and drawbacks. Your cash value return is not guaranteed. If your investments perform badly, your cash value will not grow as quickly and you could even lose money some years. If you don't have enough in cash value to cover the cost of your life insurance, you would need to increase your premium payments. Otherwise, you lose your insurance protection.

VULs often have high fees because they cover life insurance and investment costs. In addition, a VUL could include a surrender charge where you owe a penalty if you cancel within 15 years of your purchase, depending on the insurance company. The surrender charge might be 10% or more of your cash value.

## Is Variable Universal Life Insurance Right for You? Exploring Suitability and Alternatives

A VUL could make sense if you want permanent life insurance protection, have a higher risk tolerance for investing, and prefer managing investments yourself. It could be worth considering if you've maxed out your other retirement accounts. You can use a VUL for added tax-deferred investment growth. VULs offer more growth potential than other life insurance types but are also more complex and risky. Some other alternatives to consider include:

**Variable life:** [Variable life](https://www.investopedia.com/ask/answers/08/variable-life-insurance.asp) also lets you invest in the market through subaccounts. However, you cannot change the monthly premium. In exchange, these policies usually promise a minimum death benefit as long as you keep paying, even if you lose money with your investments.

**Universal life:** [Universal life](https://www.investopedia.com/terms/u/universallife.asp) lets you adjust the premiums. The cash value grows based on market interest rates. While the return changes each year, there is usually a guaranteed minimum growth rate and no risk of losses.

**Whole life:** [Whole life](https://www.investopedia.com/terms/w/wholelife.asp) is the safest option. It charges the same fixed premium and has a guaranteed death benefit and a fixed cash value return. In exchange for safety, it has the lowest growth potential.

**Term life:** [Term life](https://www.investopedia.com/terms/t/termlife.asp) is temporary life insurance protection. These policies charge a much lower premium than permanent life. Term life policies do not build cash value. You could use the money you save on insurance costs to invest through a brokerage account.

## What Is VUL in Insurance?

VUL stands for variable universal life. It is a variation on a standard universal life policy that allows for some of the cash value accumulated to be invested into the market and earn a return.

## Is VUL a Good Investment?

As an insurance product, VUL may be able to boost returns in the policy during bull markets. However, as a standalone investment, VUL will not be able to match the performance of investing directly in the market. This is because the fees and the cost of the insurance component will drag down the total return.

## What Can VUL Policies Invest In?

The exact investment options will vary among insurance companies, but almost all VUL policies allow investments in stocks, bonds, money market securities, ETFs, and mutual funds, as well as a guaranteed fixed-interest option.

## Bottom Line

Variable universal life insurance combines permanent insurance protection with an investment account. These policies suit those willing to take more risk for higher cash value growth. VULs can have high fees and are more complicated to manage, so they are not appropriate for everyone. Before signing up, be sure to compare against your other life insurance and investment options.

> **Article Sources**
>
> 1.  U.S. Securities and Exchange Commission. "[Investor Bulletin: Variable Life Insurance](https://www.sec.gov/resources-for-investors/investor-alerts-bulletins/ib_varlifeinsurance)."
>     
> 2.  Harbor Life Settlements. "[What Is Variable Universal Life (VUL) Insurance?](https://www.harborlifesettlements.com/variable-universal-life-insurance/)"
>     
> 3.  Financial Industry Regulatory Authority. "[Insurance](https://www.finra.org/investors/investing/investment-products/insurance)."
>     
> 4.  Life Settlement Advisors. "[What Happens When You Surrender a Life Insurance Policy?](https://www.lsa-llc.com/what-happens-when-you-surrender-a-whole-life-insurance-policy/)"