Variable universal life insurance (VUL)

Variable universal life (VUL) insurance policies combine the fluctuating premiums of universal life insurance with the various asset choices of variable life insurance.

Zack SigelNupur Gambhir

Zack Sigel & Nupur Gambhir

Published April 13, 2020

Some types of permanent life insurance have a cash-value component that grows with each premium payment and gains interest. The cash-value component supports the death benefit — the amount your beneficiaries will receive when you die — and can fluctuate according to market rates, meaning that you could sometimes end up paying lower premiums. If the interest on the cash value is higher than the cost of insuring you as you get older, or the cost of insurance (COI), it can be used to defray some of the cost of your premiums.

Variable universal life (VUL) insurance policies combine the fluctuating premiums of universal life insurance with the various asset choices of variable life insurance. You can choose what assets you want your premium to go into without worrying that your policy could lapse if the assets have a negative rate of return. Your premium could decrease when the assets do well and increase when they do poorly.

Read on to learn more about:

What is variable universal life insurance (VUL)?

Variable universal life insurance is a permanent life insurance policy. As long as you keep paying your premiums, your beneficiaries will receive a death benefit when you die. As with other types of cash-value life insurance, your premiums support a death benefit and a cash-value component that gains interest. Under VUL, your policy’s cash value is invested into separate accounts of assets of your choosing, such as stocks and bonds.


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How variable universal life insurance works

Under a universal life insurance policy, you gain interest at a predetermined rate, like a savings account at your bank, but your premiums can increase or decrease depending on whether the rate outperforms the market. Another type of permanent life insurance, variable life insurance, has constant premiums and you can choose the assets your premiums feeds into, like an investment account. If the rate of return on your investments is too low to support the policy, the policy could lapse when your cash value reaches zero. Variable universal life insurance combines these elements to create a policy with fluctuating premiums while choosing what assets your premiums go into.

If the assets perform better than the cost of insurance, your premiums can be decreased even though your death benefit stays the same; you could also purchase additional death benefit coverage at the premium rate you’re currently paying. As the cash value increases (if the accounts are doing well), you can put more of it toward the death benefit and pay less out of pocket.

Naturally, if the assets don’t perform well, your premiums could go up to support the same death benefit coverage, or you could be forced to accept a lower death benefit for the amount of premiums you’re currently paying. That’s because although you’re guaranteed at least a minimum death benefit, the cash-value component effectively comprises the rest of the death benefit.

Additionally, you can skip or stop paying premiums altogether and support the death benefit entirely with the cash value. You’ll be covered until the cash value runs out. If you need cash, you can borrow against the cash value (including interest) or withdraw all or part of the principal.


Some life insurance policies have something called riders, which offer supplemental coverage while you are still alive. They can protect your policy from lapsing if you become too ill to work and pay your policy premiums, or can offer additional support if you need to withdraw some money from your policy while you are alive.

Additional term life insurance

Allows you to pay additional premiums to purchase a term life insurance for another person, usually a spouse or other family member, through your current VUL policy.

Waiver of premium

Allows you to stop paying premiums when you become disabled and can’t work, for the duration of your disability.

Accidental death

Pays your beneficiaries a higher death benefit (sometimes as much as double or triple the policy’s face value) if you die in an accident.

Accelerated death benefit

Allows you, after a certain age, to start receiving all or part of the death benefit while you’re still alive. You’re usually only eligible to receive an accelerated death benefit when you develop a terminal illness.

Long-term care

Allows you to use part of the cash value to pay for living in a nursing home, including costs such as an in-house nurse.

Reasons to buy variable universal life insurance (VUL)

A variable universal life insurance policy isn't meant for everyone, but there are circumstances where it might be a good policy option for you:

  • If you’re wealthy but want to save more money. At a certain income level, you can no longer contribute to some retirement accounts like the Roth IRA. You may have also already maxed out your 401(k). In these cases, a variable universal life insurance policy can give you an additional tax-deferred savings.

  • You want to create a tax-free inheritance for your beneficiaries. As with the above, this generally only applies if you’re already very wealthy. That’s because, as of 2018, your inheritance already is tax-free under $11.2 million.

  • A variable universal life insurance policy could be cheaper than other types of permanent life insurance, like whole life insurance, as long as the cash value outperforms the market and the various fees.

Reasons to avoid variable universal life insurance (VUL)

Most people shouldn't purchase a variable universal life insurance policy. Here is why:

  • Although VUL policies can sometimes be cheaper than whole life insurance, they’re always going to be more expensive than term life insurance. Term may be much easier for most people to fit into their budget.

  • There are a lot of fees involved. You may have to pay a mortality and expense fee, fees to the mutual funds into which your premiums are invested, and insurance-related fees. All of these could eat into your cash value.

  • Your premium payments toward the cash value are not a true investment. Say you put in $500 per month in premiums. If $100 goes toward the minimum death benefit, the remaining $400 isn’t going directly toward the cash value. Instead, some of it may be paid as commission to the insurance agent and the other part goes into covering the cost of insurance, the amount it costs to insure you. Whatever’s left goes toward the cash value.

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Other types of permanent life insurance

Whole life insurance

With whole life insurance, you’re covered from the moment you sign the policy until the moment you die, but you only have to pay premiums for a limited time. That means the premiums may be very high and you won’t be able to use the cash value to pay them. However, that also means the face value isn’t dependent on the cash value.

Final-expense life insurance

This product is mostly for seniors concerned with covering end-of-life costs, including any debts co-signed with your beneficiaries and funeral expenses. Final-expense life insurance typically offers much smaller coverage amounts than those of other term or permanent life insurance products.

Consider term life insurance

Term life insurance is more affordable than variable universal life insurance. Unless you’re wealthy, VUL’s cash-value component is not cost-effective when you could be investing your money directly into a mutual fund yourself. With term, you’ll save not only on insurance premiums but also on your investments, and almost certainly enjoy a greater rate of return.

Is VUL worth it?

Should you get a variable universal life insurance policy? Unless you're extremely wealthy and have maxed out all of your other investment accounts — probably not. Due to the policy's high costs and associated fees, it’s recommended that you purchase a traditional term life insurance policy and invest the difference in a traditional investment component, where you’re more likely to see higher gains.