Variable Universal Life
Last updated on March 25,
This is essentially a variable-life policy with a
wider range of investment options and the added
flexibility of being able to raise or lower your
premiums and direct as much as you wish into the
investment account, where it grows tax free until you
take it out. You can pump thousands of dollars a year
into a variable-universal-life (VUL) policy, directing
most of it to the investment account. If money gets
tight, you can throttle back, even stop paying premiums
entirely, if there's enough cash value in the policy to
Like universal life, VUL offers flexibility. Like
variable life, it offers no guarantees. If your
investments perform poorly, you take the hit, not the
insurance company. As with whole-life products, a big
chunk of your premium goes for a variety of fees and
charges, especially in the first year. It may take a
decade or more for the cash value to exceed the premiums
you've paid. As life insurance, VUL is expensive; its
main attraction lies in the tax-deferred buildup in the
You are a candidate for this kind of policy only if
you meet the following conditions:
- You need life insurance.
- You have a tolerance for investment risk.
- You are in a high tax bracket and have maxed out
on other tax-deferred investment opportunities such as 401(k)s
- You can wait at least ten years before you borrow
from the policy (to give cash value time to build up).
- You plan to leave the policy in force for the rest
of your life.
If you don't meet all those tests, choose some other
kind of life insurance.
What Kind Should You Buy?
- Term Insurance
- Whole-Life Insurance
- Universal Life
- Variable Life
- Variable Universal