Variable Universal Life (VUL) insurance offers permanent life insurance protection as well as flexibility in connection with the death benefit, payments and investment options. Since the cash value in VUL policies are affected by fluctuations in the stock market, this type of policy is for the more risk-oriented policy holder.

Although cash value is not guaranteed, most VUL policies offer a rider at an additional cost that will guarantee the face amount until a specific age such as age 100 or  age 120. As the policyholder, most variable universal life policies will allow you to manage the investments yourself, or you can have an insurance or investment advisor help you with your investment strategy.

VUL insurance can be a powerful tool in supplementing retirement because of the tax free cash accumulation. This type of policy can also be a powerful estate planning tool to help preserve a family’s wealth by reducing tax liability. Choosing to maximum fund a VUL can be a an alternative for individuals whose annual income exceeds the limits for investing in a Roth IRA. A knowledgeable insurance or investment advisor should assist in setting up an appropriate strategy.

If a VUL has been funded properly for 15 to 30 years, and it has performed well, a policyholder can supplement their retirement income by taking distributions from the cash values in the form of a loan (loans are not taxable) and then eliminating the loan by reducing the face amount of the policy to repay the loan. This generally allows the policy holder not to have to pay income taxes on the gains according to current tax laws. Gains are growth of cash value over the total amount of premiums paid.

VUL policies usually offer 3 different death benefit options that should be considered before making your choice. One option is a (level) death benefit which means that the policy will pay only the face amount upon the death of the insured. Another option is the (increasing) death benefit which means that the policy will pay the face amount plus the cash value that has accumulated.

The third option is a (sum of premiums) which means the policy would pay the face amount plus the sum of premiums paid. If your goals and/or needs change, you can usually change your death benefit option after the first year.

If a VUL policy offers flexible premiums, this feature would allow you to choose when to make premium payments and the amount that you would like to pay, subject to certain limitations. The more premiums you pay, the greater your policy’s potential to build tax-deferred cash value.

Variable Universal Life Does:

• Offer permanent life insurance protection 
• Build cash value with tax deferred growth  
• Allow you to borrow from the cash value
• Offer premium and face amount flexibility
•  Allow you to manage the investments

Variable Universal Life Does Not:

• Guarantee cash value because it is subject to the performance of its investments