What is variable universal life insurance

by Lisa Baker

Variable universal life insurance is a type of permanent life insurance policy. Its features include cash value, investment variety, flexible premiums, and a flexible death benefit.

Like most permanent life insurance policies, variable universal life insurance offers protection for life. It is designed to last a lifetime, as long as the premiums are paid.


The main characteristics of a variable universal life policy are a mixture of those normally found in variable life and universal life policies :

Your premiums are adjustable.You can pay deferred or even stop paying your premium if the cash value of your policy can cover the costs, says the nonprofit financial planning group Life Happens . This is a borrowed feature of universal life insurance and can come in handy if an emergency leaves you short of cash.

You have a variety of investment and risk.As with a variable life insurance policy, variable universal life insurance allows you to invest in underlying subaccounts that offer a variety of investment options. And while the payoff may be great, you’re also taking a risk that can lower your cash value and, as a result, your death benefit should investments fail, says the Insurance Information Institute . The positive side? Transferring funds between investments is tax-free, so you’re not limited by potential tax implications, says Life Happens.

You can increase the death benefit. 1If your insurance needs to change over time, you can increase or decrease your coverage, says Life Happens. For example, you may be able to request an increase in the death benefit or make a one-time payment to increase the cash value of the policy (although the IRS places limitations on the amount of that one-time payment), the group says.

You can withdraw or borrow money from your insurance. twoLike some permanent life insurance options, a variable universal life policy allows you to withdraw funds or take a loan against the cash value. The downside is that a withdrawal or loan can reduce your death benefit, or result in a tax liability if you don’t follow the repayment guidelines.


Are you wondering if variable universal life insurance is right for you? Life Happens says it’s a good option for people who are “looking for maximum flexibility,” which also means that you’ll need to make sure you can monitor your investment performance and make decisions about where to allocate funds over time. It is important to understand that investing involves risks that have the potential to reduce the cash value of the policy.

Of course, any decision about life insurance should be thought through. Therefore, it may be helpful to review your current circumstances and goals with a life insurance agent , who can help you find the policy that meets your needs.

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