What is Variable Universal Life Insurance?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 08 February 2020
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Variable universal life insurance (VUL) is a type of life coverage that incrementally accrues cash value. With this particular plan, that cash value is invested in a number of different accounts, with the contract owner determining where the money is invested. This diversity in the investment strategy is what actually makes this type of coverage variable, since the cash value is invested in a variety of different accounts.

As with other forms of universal life coverage, a variable universal life insurance policy provides a degree of flexibility in how the premiums are collected. Depending on the terms of the insurance contract, the policyholder may tender premium payments annually, monthly, or on any other schedule that is acceptable to both parties. This is in contrast to most whole life plans that require rigid compliance with a set payment schedule in order to prevent a lapse in coverage.


There are several other benefits to variable universal life insurance that are not provided with other types of life coverage. VUL rarely includes any type of endowment age in the terms and provisions. This means that if the total value of the plan exceeds the face value at the time the insured party dies, the insurance provider will pay out at the level of total value. For example, if the face value of the policy was $200,000 US dollars (USD) and the total value was $250,000 USD, the beneficiary of the policy would receive the latter figure rather than the former. In comparison, a whole life plan pays face value even if the insured party has reached the endowment age and paid in more than that face value.

There is also the possibility of realizing significant returns on the accounts where the premium payments are invested. In the event that those accounts perform at levels above and beyond the performance of the general account of the insurance provider, that means additional returns for the policyholder. This is different than with whole life, where the return is fixed. Assuming the investments continue to perform well over the years, the VUL policy is likely to build up a significant amount of cash value over the face value.

In order for a variable universal life insurance plan to function, the issuers of this type of coverage must make investments in accordance with the regulations that apply in the country where the plan is offered. This typically means that the same regulations used to monitor investment activity on stocks, bonds, and commodities also applies to the several accounts where the premiums are invested. This approach helps to ensure the stability of the investment approach, and offers both the provider and the policyholder of a variable universal life insurance plan with protection from investment scams that would ultimately damage both parties.



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