Variable universal life (VUL) is permanent life insurance with flexible premiums and cash value that’s invested in market-based subaccounts.
How it works
A VUL combines a death benefit with an investment component. You direct your cash value into subaccounts, which work much like mutual funds and hold stocks, bonds or money market investments. Your cash value rises and falls with the performance of the subaccounts you choose.
Unlike indexed universal life, there is usually no floor. That means more growth potential in strong markets, but your cash value can also lose money, including the money you paid in. Premiums are flexible, but if the cash value drops too low, you may need to pay more to keep the policy in force.
Because VUL involves investments, it’s regulated as a security. It can only be sold by professionals who hold both an insurance license and the required securities registrations, and it must be sold with a prospectus.
Who it may suit
- People with a long time horizon and comfort with market ups and downs
- Those who want permanent coverage and more control over how cash value is invested
- People who have already maxed out other tax-advantaged savings options
What to watch for
- Investment risk, including possible loss of principal
- Multiple layers of fees: insurance charges, administrative fees and subaccount expenses
- The risk of policy lapse if markets fall and premiums aren’t increased
The bottom line
VUL offers the most growth potential of the permanent life insurance types, along with the most risk. Read the prospectus carefully before investing.
For educational purposes only. Variable universal life insurance is a security sold by prospectus, which contains information about fees, risks and investment objectives; read it carefully before investing. Workable Financial Solutions does not currently offer variable products or other securities.