Variable Universal Life Insurance

What it protects against
Financial loss to beneficiaries due to death of the insured.

How it works
Variable universal life has most of the features and uses of universal life. Premiums are flexible, and the death benefit is adjustable without new evidence of insurability.

Who needs it
Some people may choose a variable universal life policy because it can build significant cash value that can be used for supplemental retirement income or to increase the death benefit without the need for additional underwriting. In particular, the affluent may find this product attractive.

Who may not need it
Anyone who may not need life insurance, such as a single person with no dependents. Those who need life insurance and need a guaranteed death benfit should consider term, whole life or universal life insurance. Variable life products also may not be suitable for those unprepared to monitor their asset allocation. Advisers or insurers may provide this service, but contract owners should understand the implications of asset-allocation decisions.

When to buy it
The product is best purchased during one's working years - the earlier the better. Insurance costs are lower during these years, and when cash values have many years to build, they are unlikely to fall to levels that can lapse the policy. It may also be used in business situations to fund supplemental executive retirement plans or business continuation plans.

How to pay for it
Premiums payments are flexible. Owners of variable universal life insurance may skip, decrease or increase payments. If a variable universal life policy's underlying investments perform consistently well, owners may reach a time when additional premiums are no longer necessary. Conversely, owners may reach a time when they need to put more into the contract than they expected.

Terms to Know
  • Section 1035 Exchange  (View Definition )
  • Section 7702  (View Definition )
  • Separate Account  (View Definition )