Understanding variable universal life insurance
Not all life insurance policies are alike. Here, we're looking at the basics of a variable universal life (VUL) insurance policy that includes what it is, how it works, and a few of the pros and cons.
Variable universal life insurance is a permanent life insurance policy that allows for growth. The cash value of a variable universal policy can be invested to grow the value of the account.
How variable universal life insurance works
Like whole life and universal life (UL) insurance, VUL is a permanent* life insurance policy with the potential to earn cash-value over time. It's similar to UL insurance, but instead of earning a specific crediting rate on the cash-value component, VUL allows you to put some or even all of the cash-value you may have in your policy, into a “variable account” comprised of investment funds. The dual nature of VUL provides you with valuable life insurance coverage, along with a cash-value component that permits you a certain degree of control over where you want to allocate the cash-value portion of your policy for greater earning potential along with the market risk that comes along with it.
Who can benefit from variable universal life insurance?
Before investing in a VUL policy, it's important to assess if this is the best type of life insurance for you. Because VUL involves market investments, there is some market risk. Those who are risk averse may wish to investigate other life insurance options. However, for those who are comfortable proactively managing their investments, VUL may be a good option. VUL may benefit those who can contribute to the policy early in the policy's life, providing greater opportunity for growth.
Advantages of variable universal life insurance
- A death benefit that won't decrease** as long as you continue to make your minimum premium payments on time
- Flexible premium payment options
- The potential to earn higher than average returns compared to other types of permanent life insurance
- Permits you to maintain a certain level of self-directed control over how your cash value is invested
- Allows you to allocate according to your individual risk tolerance
Disadvantages of variable universal life insurance
- While you may experience better than average cash-value growth with a VUL, you could also experience a decrease in your cash-value due to poor performance of your investment options.
- Fees that are associated with a VUL may be higher than with a universal life insurance policy
- VUL is more complex than most other forms of life insurance and should be monitored closely throughout the life of the policy.
- VUL is typically subject to surrender charges for a period of up to 15 years (more or less depending on the carrier) which can be very high in the early years of the policy.
Key takeaways of variable life insurance
Before deciding if VUL is right for you, consider your goals for purchasing life insurance. This type of policy offers a way to help provide for loved ones after your death, while simultaneously growing cash value that can be used in any way you choose.
Because of its cash value potential, a VUL can be a way for you to complement your retirement nest egg, while at the same time, have the life insurance coverage you need. For more information on other types of life insurance including universal life and indexed universal life, visit the Protective Learning Center.
*As long as required premium payments are timely made.
**Unpaid loans and partial withdrawals reduce cash value and death benefit.
Investors should carefully consider the investment objectives, risks, charges and expenses of the applicable variable universal life insurance policy and its underlying investment options before investing. This and other information is contained in the prospectuses for the applicable variable universal life insurance policy and its underlying investment options. Investors should read the prospectuses carefully before investing. Prospectuses for Protective Variable Universal Life policies may be obtained by contacting PLICO at 800.265.1545.