How Does Variable Universal Life Insurance Work?

You Control Your Money

Perhaps the most significant advantage of VUL is that it allows the user to invest money in multiple accounts that they specify that have the potential to increase in value over time, meaning there is potential to grow into a much larger payout than a fixed type life insurance policy. VUL also usually does not have an age specified where the life insurance company can pay out before death, meaning the accounts are given more time to grow.

Premium Payments are Flexible

Another advantage to VUL, is that monthly premiums are "variable," meaning that they are flexible within the limits of the insurance policy. For example, on a given month, a user might be able to opt not to pay anything at all, while a different month, they could pay a very large amount, up to a maximum specified the government. Payments made are up to the discretion of the policy holder, as long as they make a maintain a minimum amount to pay for the costs involved with the policy.

Costs More and Can Lose Value

There are two main drawbacks to choosing to use a VUL. The first is that the costs and fees of the account are typically higher than any other type of life insurance, due to the transaction costs associated with making investment trades. The second is that investing in itself carries some inherent risk, so the value of your policy can go down if the market performs poorly. As a result, the VUL is usually a better option for those who are younger, who have a longer time to invest and alleviate risk by spreading it out over time.