Variable Universal Life Insurance: What Is It and Who Should Get It?

Everything you need to know about variable universal life insurance, what it is, how it works, and what risks it may have.
By Mike Parker
Updated Aug 18, 2022
People who are happy because they have Variable Universal Life Insurance.
Why trust our opinion?

Our content follows strict guidelines for editorial accuracy and integrity. Learn about our and how we make money.

Life insurance policies can sometimes be restrictive in terms of how they invest cash values and death benefits.

With a variable universal life insurance policy, you can actively participate in increasing your policy's benefits. However, there are risks that you should be aware of before signing up for these kinds of plans.

This article will help you understand what variable universal life insurance is, what it does, how it compares to other insurance policies, and who should buy it.

An old man who is happy because he has variable life insurance.

Source: Pexels

What Is Variable Universal Life Insurance?

Variable universal life insurance, often called VUL, has similar flexibility to variable life insurance. These plans cover a policyholder for their entire life and will only end if premiums aren’t paid.

However, with VUL, policyholders can adjust their death benefit, cash value component, and monthly premium. The cash value of a VUL policy can be invested, usually in various mutual funds.

Due to their investment features, VUL policies are typically more expensive and may carry a higher risk than other types of life insurance.

What Is Variable Life Insurance?

Variable life insurance is a policy that provides policyholders more flexibility than other types of life insurance.

Like most other types of life insurance, variable life insurance pays a death benefit to the policyholder's beneficiaries when they die.

Typically, this policy’s death benefit exceeds the amount that the policyholder has paid in premiums.

An elderly man with his cash value.

Source: Pexels

Terms You Should Know:

Death Benefit: The amount of money that will be paid out to a policyholder’s beneficiaries when they die.

Premium: A regular payment made to an insurance company in exchange for insurance coverage.

Policyholder: The person who is insured by a life insurance contract.

Beneficiary: A nominated person who will receive the full, or a portion of, a life insurance contract’s death benefit.

VUL also includes a cash value component that changes value based on:

  • Amount of premiums paid.

  • Fees and expenses charged by the insurance company.

  • Performance of the investments (often similar to mutual funds) tied to the policy.

  • Loans or withdrawals taken from cash value by the policyholder.

What Are Mutual Funds?

Mutual funds are financial vehicles where members pool their money together. These funds are managed by financial professionals who will invest the money in different stocks with the aim of making a profit.

With variable universal life insurance, a policyholder’s cash value is placed in a mutual fund and then invested by a fund manager.

A financial professional who invests a Mutual Fund in different stocks.

Source: Pexels

What makes VUL so different is that it allows the policyholder to decide how to invest the cash value. However, the policyholder will need to play an active role in choosing investment options.

Simply, variable life insurance is a type of permanent life insurance with a flexible death benefit. It can be used for long-term insurance, investment, retirement funds, and tax-planning needs.

What Is Permanent Life Insurance?

Permanent life coverage is a life insurance policy that does not expire and stays in place for your entire life.

These life insurance contracts will only end if the policyholder stops paying their premiums or cancels their policy.

Permanent life plans are usually more expensive than term life insurance plans. However, they can provide some benefits that term life insurance does not offer.

A person viewing their cash value.

Source: Pexels

Key Point: What Is a Cash Value?

Cash value is an investment feature of some life insurance policies that can be withdrawn or borrowed if necessary.

If you fail to pay your premiums or payments fall short, the cash value can be used to cover costs and the policy may expire.

It can also be used as collateral for loans or as an emergency fund in case you need money quickly.

Cash value accounts usually take a long time to build up significant value and there are different ways that these funds can earn interest or grow.

A man who is reviewing the differences between variable Universal Life Insurance vs Variable Life Insurance.

Source: Pexels

Variable Universal Life vs. Variable Life Insurance

Both variable universal and variable life insurance allow policyholders to invest their cash value in investments such as stocks, bonds, and mutual funds. 

They are both ‘“variable” because their cash value is dependent on market performance and can vary as a result.

However, there are two main differences between the two: the flexibility of premiums and the death benefit.

Take a look at this table to understand how variable universal and variable life insurance differ.

Variable Universal Life InsuranceVariable Life Insurance
Flexibility DifferencesYou can increase or decrease premium amounts within a set range.Does not allow you to raise or lower premium amounts.
Death Benefit DifferencesThis allows the policyholder to increase or decrease the death benefit, no matter how the cash value investment account is performing. However, the policyholder must agree to adjust the premiums they are paying in order to do so.Guarantees the death benefit won’t fall below a specific dollar amount, regardless of investment performance.

A person looking at the stock market.

Source: Pexels

Investing with Variable Universal Life Insurance

As with all other permanent life insurance policies, variable universal life insurance also comes with a cash value component that is funded by the policyholder.

A policyholder can grow their cash value amount by paying additional money into their life insurance policy each month.


A person has a variable life insurance policy and wants to build their cash value. Their premiums are around $350 per month.

If they were to pay $500 each month, they would cover their premium and the difference would be placed in their cash value account.

This cash value account would then accumulate by $150 each month, earn interest or other investment gains, and qualify for tax-deferred growth.

Once a policy’s cash value has grown, the policyholder will be able to invest his or her cash value in investments that their insurance provider has selected.

While this may be appealing to some people, it’s important to highlight that investing cash value in stocks, bonds, or mutual funds does not come without risk. 

If you’re thinking about buying a variable universal life insurance policy, be sure to understand the risks and policy structures before making a purchase. 

Send your questions to or call us on 1-888-912-2132 to get personalized assistance from one of our skilled PolicyScout consultants.

A woman deciding whether to invest with her Variable life Insurance or not.

Source: Pexels

Pros and Cons of Variable Universal Life Insurance

When you take out a life insurance policy, it is always recommended that you fully understand the ins and outs of the policy before you buy it.

The table below will help you weigh up the pros and cons of variable universal life insurance. 

Gives you the ability to take out loans against your cash value.Loans or poor investment performance may decrease the policy’s cash value, potentially leading to a smaller death benefit.
Investment options provide the opportunity to build greater cash value.Failure to maintain enough cash value can cause your policy to crash and be terminated.
This type of policy can enable you to diversify your investment strategy.Investing in the open market can come with risks. These risks may mean higher premiums than other life insurance policies.

How Do I Know If Variable Universal Life Insurance Is Right for Me?

If you are looking for more guidance regarding variable universal life insurance, or anything else related to life insurance, send your questions to or call us on 1-888-912-2132 to get personalized assistance from one of our skilled Medicare consultants.

Who May Benefit from a Variable Universal Life Insurance Policy?

VUL and variable life insurance are investment-type policies designed for people who:

  • Plan to pay active attention to their investments.

For these types of people, having knowledge about the open market and the ability to invest some of their cash value into the open market could be highly beneficial.

If the investment goes to plan then the cash value could grow significantly and overall improve their insurance plan or livelihood.

  • Can fund a policy heavily in its latter years.

What this means is that the individual will have the means to cover their more expensive premiums in the latter stages of the policy.

When the individual takes out a VUL policy, the premiums will be lower than a typical life insurance policy and will grow after a specified time period. 

This plan could work for individuals who cannot afford a standard premium at the time of taking it out, but will be able to afford inflated premiums after the signed increase period.

  • Are comfortable with a high level of risk and understand how the stock market and mutual funds work and the risk involved.

Similar to the first point, an individual who buys a VUL plan should be comfortable with the stock market and understand the risks that exist.

If the insurance investment into the stock market succeeds, then the cash value will grow. However, there is a chance that the investment fails and could result in the insurance policy being terminated.

Is Variable Universal Life Insurance a Good Investment?

Most of the time, investing directly in the market is better than putting money into a VUL. That's in part because some insurance companies charge fees that are too high for what they cover.

It is not even beneficial for tax reasons. While the cash value of a VUL grows tax-free, it is taxed at the policyholder's regular tax rate when it is withdrawn.

There is a good chance that even if someone buys term life insurance and invests the money they save by not buying a VUL, they will still come out better off.

Where Can I Learn More about Life Insurance Policies?

We know that choosing the right life coverage can be difficult. At PolicyScout, we have many resources to make this decision easier.

Check out our Life Insurance hub and latest guides to learn about other types of life insurance. 

We have articles that cover a range of topics, including supplemental life insurance, life insurance for parents, final expense insurance, and cash value insurance.

You can also reach out to one of our trained consultants at 1-888-912-2132 or at for advice and guidance on the best providers and plans in your area.