Variable Universal Life (VUL), which also is called flexible premium variable life or universal life, is a combination of universal life and variable life. VUL offers policyowners the flexibility of universal life (UL) with respect to premium payments and death benefits. The VL contract works like this:
- Premiums (less an investment expense and/or sales load, state premium tax, and a mortality charge) are paid into separate investment accounts.
- The policyowner selects among several separate accounts. These include mutual-fund type alternatives such as stock funds, bond funds, and money market funds to invest the remaining premium.
- Policyowners may typically switch or rebalance their investments among the funds one or more times per year. The insurer may or may not charge a fee for each such movement of cash.
The single most important distinction between variable life and traditional whole life is in the investment flexibility and the consequent shifting of the investment risk from the insurer (with classic whole life) to the policyowner (with variable life). In the variable life contract the policyowner’s funds are segregated, since they are placed in accounts that are distinct and separate from the company’s general investment fund.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM