Variable universal life (VUL) insurance is a type of permanent life insurance policy that provides a death benefit and accumulated cash value, but with the flexibility to invest in different subaccounts similar to those available within a mutual fund. The policyholder divides their premiums between the death benefit and cash value portion of the policy, and these divisions can be altered over time to suit changing needs.

The main benefit of a VUL policy is the potential for significant growth within the cash value account through investments within the subaccounts. Generally, the policyholder has the ability to choose from a list of funds which may specialize in various sectors of the stock market for greater risk or higher return potential. By leaving the principal invested in the subaccounts, the policy can gain a higher return than traditional universal life insurance policies.

VUL policies differ from term life insurance policies in that the policyholder is not required to reapply for coverage at each policy renewal. The premiums also stay level, providing the policyholder with a guaranteed premium and a guaranteed death benefit if the policy is kept in force.

By offering access to professionally managed subaccounts and long-term life insurance protection, VUL policies are popular for those who wish to have life insurance coverage with retirement savings features. The cash value is generally accessible for the policyholder or their remaining family members to use after death, allowing the deceased’s estate to be passed on to the beneficiaries.

Before making the decision to purchase a VUL policy, it is important for the policyholder to understand the risks involved. Like other types of life insurance products, VUL policies come with surrender fees which are at their highest during the early years. If the policy is surrendered too early in order to withdraw the cash value, the policyholder can be penalized with significant fees. Even if the policyholder is satisfied with the performance of the VUL and no longer wishes to keep the policy, they will still incur fees.

In order to make the most of a VUL policy and make sure that it keeps up with the current market, it often requires more significant oversight. As the investments in the subaccounts can be prone to short-term volatility, it is essential to take into account market performance, fees and the performance of each subaccount. Monitoring the performance regularly is necessary to ensure that the policy is aligned with the investor’s risk and return objectives.

For those who wish to pursue an integrated strategy to life insurance and investments, a VUL policy can be a viable option. In order to achieve the desired balance between risk and return, a policyholder must be willing to actively manage their policy and understand the risks involved. In addition to the usual legal matters, it’s worthwhile to discuss the strategy of investing in a VUL policy with a qualified financial advisor.