Variable Universal Life Insurance (VUL)

Definition - What does Variable Universal Life Insurance (VUL) mean?

Variable universal life insurance is a type of permanent life insurance policy. This means that these policies won't expire so long as the insured keeps paying the insurance premiums. Also, these policies build cash value, which is money the insured can take out and spend while alive.

Since these policies are variable, the cash value doesn't have a guaranteed, fixed return. Instead, the money is put in investments like the stock market, bonds, and mutual funds. Also, the insured can change how much they pay each year for their insurance coverage; the annual premium isn't fixed. However, the insured needs to pay a minimum amount each year, set by the insurance company, or the policy will lapse.

Insuranceopedia explains Variable Universal Life Insurance (VUL)

Variable universal life insurance policies are like a mix of life insurance and an investment account. They can be a good choice for people who want a higher long-run return on their cash value and can tolerate risk. These policies have the potential to earn more per year than regular whole life insurance. However, there will be years when these policies earn less because of poor investment performance.

The universal feature is also helpful for people who want flexibility over their premium payments. This requires some discipline though because if a policyholder doesn't pay enough into their policy, they may not be able to afford to keep the policy in force later on. Over time, the cost of the insurance goes up so the insured needs to save enough money early so they can afford the more expensive premiums in the future.

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