Home Life insurance Types of life insurance What is variable universal life insurance? What is variable universal life insurance? Variable universal life is a type of permanent life insurance policy has a flexible death benefit and premium. Written by Cynthia Bowman Cynthia Bowman Cynthia Paez Bowman is a personal finance writer with degrees from American University in International Business and Journalism. Her work has been featured in MSN, Brex, Bankrate, Freshome, The Simple Dollar, GOBankingRates, and more. Cynthia is based between Las Vegas and Europe. In her spare time, she travels throughout Africa and the Middle East helping women entrepreneurs develop and grow their businesses. | Reviewed by Ashlee Tilford Ashlee Tilford Ashlee, a former managing editor, insurance, at QuinStreet, is a journalist and business professional. She earned an MBA in 2014 with a concentration in finance. She has more than 15 years of hands-on experience in the finance industry. | Updated on: June 29, 2023 Why you can trust Insure.com Quality Verified At Insure.com, we are committed to providing the timely, accurate and expert information consumers need to make smart insurance decisions. All our content is written and reviewed by industry professionals and insurance experts. Our team carefully vets our rate data to ensure we only provide reliable and up-to-date insurance pricing. We follow the highest editorial standards. Our content is based solely on objective research and data gathering. We maintain strict editorial independence to ensure unbiased coverage of the insurance industry. Life insurance provides a financial cushion for your loved ones after you pass, but it can have more uses than a death benefit payout. There are several types of life insurance products available that offer more than just the death benefit. Unlike term life insurance, which is only for a set period, such as 20 or 30 years, permanent life insurance, such as whole, universal and variable universal insurance, has no expiration date. Your policy is in force as long as you’re alive and making premium payments. If you consider yourself an armchair investor or feel comfortable with equities, a variable universal life policy allows you to add and invest excess cash.How does variable universal life insurance work?A variable universal life insurance policy is a permanent life insurance option. Your premiums are based on the death benefit and cash value component. You can tap into a variable universal life policy’s cash value while you’re alive. You may be able to borrow or make withdrawals.As your cash value balance grows, your money can grow more through mutual funds or equities than with a whole-life policy earning a nominal interest rate. But with greater rewards comes greater risks. The stock market can be volatile, affecting your returns.Andrew Bucklee, senior vice president and head of life and executive benefits distribution for Lincoln Financial Group, recommends universal life insurance for longer-term goals, such as retirement. “When planning for retirement, there are many considerations, such as lifestyles, wealth transfer and potential impacts of market volatility, taxes and longevity — all of which are magnified in times of economic uncertainty.”Since a variable universal life insurance policy is invested in equities, including stocks and mutual funds, having other cash reserves will come in handy to ride out the market fluctuations during negative or bearish market conditions. That way, you don’t have to draw on your cash value during poorly-performing periods when your value is down.How can you invest with variable universal life insurance?Most insurance companies provide dozens of investment options for variable universal life insurance. Your choices may include:Mutual fundsMoney market fundsIndex funds, such as a Nasdaq or S&P 500 fundBondsBesides the opportunity to grow cash value, you have more flexibility with paying your premiums than with a whole or term life insurance policy. You have a minimum and maximum payment range and can pay any amount within limits. You can also pay your premiums using part (or all) of your cash value.How you can use the cash value of variable universal life insuranceYour cash value will experience an upside over time, though this upside may take decades. The growth is tax-deferred, further accelerating appreciation. You can access the growing cash value of your variable universal life insurance policy for many purposes:To make withdrawalsTo pay your premiumsTo increase the death benefitTo borrow againstTo use as collateral for a loanAs the surrender value that you receive if you choose to end your policy.Pros and cons of variable universal life insuranceVariable universal life insurance comes with greater risks and rewards than other types of life insurance. It’s important to understand the pros and cons of the policies.ProsGuaranteed coverage for lifeGreater chance of growing cash value through investmentsTax-deferred growthFlexible premiumsThe death benefit can be adjusted without losing coverageBorrowing against the cash value is possibleYou’ll have the potential to earn higher returns on your cash balanceConsCash balance may fluctuate based on your investmentsNo guaranteed rate of returnInvolves high riskPolicyholders must understand and monitor the stock marketOverdrawing the cash balance can decrease the death benefitHigher fees than other life insurance productsThe insurance company keeps the cash value after you dieHigh surrender fees QuickTake How much term life insurance costs No-medical-exam life insurance: What it is and how it works What is instant life insurance? Permanent life insurance: What it is and how it works What is final expense insurance and how does it work? The different types of term life insurance policies explained Whole life insurance: What it is and how it works What is universal life insurance? Types of life insurance What is term life insurance and how does it work? What seniors need to know about buying life insurance What is indexed universal life insurance? What happens if you outlive your term life insurance? The limitations of group life insurance What is simplified issue life insurance? A marijuana user's guide to buying life insurance The basics of group life insurance Term life insurance for seniors Term vs. perm life insurance: Which one is right for you? What is optional term life insurance? How to buy group life insurance for your small business See more > How the death benefit works for a variable universal life insurance policyVUL policies allow the policyholders to adjust the amount of the death benefit during the life of their variable universal life insurance policy. You’ll probably need to pass a medical exam to increase the amount or pay surrender charges if you decrease the amount significantly.A variable universal life insurance policy’s death benefit isn’t always guaranteed. Instead, the payout to beneficiaries fluctuates depending on your investments. Be sure to ask the insurance company about a guarantee before you sign up. In some cases, you may have to pay higher premiums to guarantee that the death benefit won’t be affected by the cash value account’s performance.Alternatives to variable universal life insuranceUnlike most other types, variable universal plans allow the policyholder to choose how much they want to contribute each month or year and invest that money in stocks, bonds, mutual funds or any other investment option available on the market. That amount will fluctuate with changes in interest rates, so it can grow as well as reduce when rates go down. Variable universal life insurance offers are typically more expensive than traditional whole-life policies because you pay for flexibility over time rather than security later.However, if you’re looking for something more predictable with guaranteed rates, then fixed policies might work for you. Here are some of the alternatives to variable universal life insurance-Final expense life insurance: Final expense policy covers the costs associated with end-of-life expenses, such as funeral and medical bills. The coverage is much smaller than any other types of life insurance policies.Term life insurance: Term life insurance is more cost-effective and straightforward than variable universal life insurance. There is no cash value, and your beneficiaries receive a straightforward payout.Whole life insurance: A whole life policy lasts your entire life and has a cash value, but doesn’t come with the same risks as variable universal life insurance. What is the difference between variable life and variable universal life insurance? Variable life and variable universal life are similar in some ways. They’re both permanent life insurance, they both have cash value and they let you change your payments and death benefit amount. Variable life’s premiums are mostly invested in investment accounts, such as stocks, mutual funds, bonds and money markets. Variable life policies are riskier than variable universal life. Death benefits and cash value can change over time depending on investment performance. A variable life policy guarantees a death benefit, but if your investments perform poorly, you may have to pay higher premiums to assure the death benefit. Meanwhile, variable universal life policies combine variable and universal life. You can choose either a fixed death benefit or a variable death benefit. The variable death benefit is the policy’s cash value combined with the policy’s face value. Policyholders have more options to invest in these policies. Having more options can lead to more success, but failing investments can put you more at risk. Is variable universal life insurance a good investment?Variable universal life insurance is a good investment if you’ve already maxed out your retirement accounts and still have excess cash you’d like to shelter from taxes. Otherwise, you may be better off investing in simpler, less expensive life insurance products, such as term or whole life, and invest the difference into an index fund through a brokerage.Variable universal life insurance is more expensive than term or whole life insurance. Besides the policy fees, there are management fees and commissions associated with the investments you choose. You should speak to a certified financial planner before purchasing a variable universal life insurance. It’s a complicated insurance policy that requires a lot of planning. Frequently asked questions about variable universal life insuranceWhat is the minimum amount of coverage required for variable universal life insurance?The minimum coverage for variable universal life insurance varies from company to company, but it typically requires a minimum $50,000 worth of coverage per insured person.What is the difference between universal life and variable universal life?One of the most important differences between universal and variable life insurance is that with a variable plan, you have more control over your cash value growth.Variable universal life (VUL) is a type of life insurance policy that combines the benefits of both variable universal life (VUL) and flexible variable life or universal life insurance. This kind of policy offers more options than standard plans, giving its holders flexibility in coverage changes with ease.Whereas universal life insurance policies pay a death benefit upon your death and accumulate cash value during your lifetime. The accumulated cash is based on both what you paid in premiums as well as current interest rates decided by your insurance company. × Get Free Life Insurance Quotes Today! Zip Code Please enter valid zip Age Age 16 – 20 21 – 24 25 – 34 35 – 44 45 – 54 55 – 64 65+ Coverage Amount Coverage Amount $50,000 – $100,000 $100,000 – $200,000 $200,000 – $300,000 $400,000 – $500,000 $500,000 – $1,000,000 $1,000,000 – $2,000,000 $2,000,000 – $5,000,000 $5,000,000+ Coverage Type Coverage Type Whole Life Term Life Final Expense Not Sure Gender Gender Male Female Non-Binary Tobacco Use Yes No Compare Quotes Cynthia BowmanContributing Researcher | . .Cynthia Paez Bowman is a personal finance writer with degrees from American University in International Business and Journalism. Her work has been featured in MSN, Brex, Bankrate, Freshome, The Simple Dollar, GOBankingRates, and more. Cynthia is based between Las Vegas and Europe. In her spare time, she travels throughout Africa and the Middle East helping women entrepreneurs develop and grow their businesses. 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