Variable universal life insurance (VUL) is one that builds cash value and operates very much like a mutual fund. The amount is invested in various stocks and bonds just like in a mutual fund and the benefit (dividend) is then passed on to the consumer. These are a type of permanent life insurance policy since the death benefit is payable if the insured dies at any time during the period of the policy.

• This type of insurance is called ‘variable’ since the value of the investment that is made in separate accounts varies. The separate accounts refer to the investments made in stocks and bonds, the value of which changes periodically. This type of insurance is called ‘universal’ since the premiums that are payable are flexible in nature and can range from zero to the maximum limit stipulated by the Internal Revenue Code for insurance companies.
• Variable life insurance policies offer a lot of flexibility as far as premiums is concerned. The insured may not have to pay any premium if there is sufficient cash value to cover any such premiums. However the amount of premiums may increase and has a specified pre-determined maximum limit set by the internal revenue code for insurance.
• Another advantage of VUL is that they provide tax benefits to the insured since the consumer can enjoy tax free returns as long as the policy remains a life insurance policy. Some people make use of VUL to escape tax deductions by giving some amount to their children under the gift tax exemption. This is usually done by people who have extensive estates and can be levied with an estate tax.
• The number and type of choices available depends on the insurer, however several policies are offered with a wide assortment of separate accounts. Many insurers offer over fifty separate accounts with investment approaches from very conventional assured fixed accounts, to bond funds, to equity funds to extremely volatile sector funds.
• VUL policies are used by people who are in higher tax brackets and the death benefit is paid tax-free if the premiums are made with after-tax money. Other advantages of VUL are educational planning, retirement planning, estate planning, and financial protection. The benefits in such planning can range from estate tax deduction to better education prospects and healthier retirement solutions.
• Variable universal life insurance also has some disadvantages such as being expensive compared to whole life insurance policies. However this may not be true in all the cases since some non-VUL policies are more expensive than Variable life insurance. Another criticism is that insurance companies sell such policies without disclosing to the consumers that a Roth IRA or a 529 plan are also good alternatives for VUL.
• The advantage of variable universal life insurance policies over a whole life policy is that the latter does not offer cash value. However, in a variable universal life insurance policy, the face value plus the cash value accumulated over the years is paid in case of death or when the policy matures.

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