Variable Universal Life (VUL) Insurance

By 
THE INVESTOPEDIA TEAM

Updated May 23, 2022

Reviewed by 
MARGUERITA CHENG

What Is Variable Universal Life (VUL) Insurance?

Variable universal life (VUL) is a type of permanent life insurance policy with a built-in

savings component that allows for the investment of the cash value . Like standard universal life
insurance, the premium is flexible. VUL insurance policies typically have both a maximum cap
and minimum floor on the investment return associated with the savings component.

VUL insurance has investment subaccounts that allow for the investment of the cash value. The
function of the subaccounts is similar to a mutual fund. Exposure to market fluctuations can
generate significant returns, but may also result in substantial losses. This insurance gets its
name from the varying results of investment in the ever-fluctuating market. While VUL
insurance offers increased flexibility and growth potential  over a traditional cash value or a
whole life insurance policy, policyholders should carefully assess the risks before purchasing it.

KEY TAKEAWAYS

 Variable universal life (VUL) insurance is a type of permanent life insurance policy that
allows for the cash component to be invested to produce greater returns.
 VUL insurance policies are built on traditional universal life insurance policies but have
a separate subaccount that invests the cash piece in the market.
 As a result, the return to the cash component is not guaranteed year after year.
 VUL insurance policies will have a maximum cap as well as a floor (usually 0%) on the
returns that the investment part receives.
 VUL policies are not intended to be standalone investments, but rather a form of life
insurance.

How Variable Universal Life (VUL) Insurance Works

Like universal life insurance, VUL insurance combines a savings component with a

separate death benefit, allowing for greater flexibility in managing the policy. Premiums are
paid into the savings component.

For a VUL insurance policy, the savings element consists of separately managed accounts,
referred to as “subaccounts.” Each year the life insurer deducts what it needs to cover mortality
and administrative costs. The rest remains in the separate accounts to earn further interest.
Two Components

In a whole life policy, the life insurer assumes the investment risk by guaranteeing a minimum
cash value growth. By separating the savings component and the death benefit component, the
life insurer transfers the investment risk of the VUL policy to the insured.

The insured must assume the likelihood that the separate account may generate negative returns,
which will reduce the cash value. Significant and sustained losses compromise the cash
value. As a result, the insured may need to remit higher premium payments to cover the cost of
the insurance and rebuild the cash value.

 
By separating the savings component and the death benefit component, the life insurer transfers
the investment risk of the VUL policy to the insured.

Subaccounts

The separate subaccount is structured like a family of mutual funds. Each has an array of stock
and bond accounts, along with a money market option. Some policies restrict the number of
transfers into and out of the funds. If a policyholder has exceeded the number of transfers in a
year and the account in which funds are invested performs poorly, they may need to pay a
higher premium to cover the cost of insurance.

Special Considerations

In addition to the standard administration and mortality fees paid by the policyholder each year,
the subaccounts deduct management fees that can range from 0.05% to 2%. Because the
subaccounts are securities, the life insurance representative must be a licensed producer and
registered with the Financial Industry Regulatory Authority  (FINRA).1

The growth of the VUL insurance policy’s cash value is tax-deferred. 2  Policyholders may
access their cash value by taking a withdrawal or borrowing funds. However, if the cash value
falls below a specific level, additional premium payments must be made to prevent the policy
from lapsing.3

What Is VUL in Insurance?

VUL stands for variable universal life. It is a variation on a standard universal life policy that
allows for some of the cash value accumulated to be invested into the market and earn a return.

Is VUL a Good Investment?

As an insurance product, VUL may be able to boost returns in the policy during bull markets.
However, as a standalone investment, VUL will not be able to match the performance of
investing directly in the market, This is because the fees, caps, and the cost of the insurance
component will drag down the total return.
What Can VUL Policies Invest In?

The exact investment options will vary among insurance companies, but almost all VUL
policies allow investments in stocks, bonds, money market securities, ETFs, and mutual funds,
as well as a guaranteed fixed-interest option.

SPONSORED
Open a Live Account in Under 5 Minutes
Open a trading account in under 5 minutes  and join 900,000 others globally trading gold, silver,
copper and 300+ other CFD products over assets like forex, indices, and shares with an award-
winning broker. Trade gold from 0.0 spreads on Vantage's RAW account,  and access free
education and trading tools with 24/5 phone support. Learn more about trading with Vantage
and get started.

VARIABLE Universal Life, or VUL in short, is an investment-linked life insurance product. It is

primarily an insurance with a bonus investment. It is one of the best-sellers of most Insurance
companies because of its two-in-one feature — protection and investment.

VUL is expected to be offered as an insurance for income and health protection, education fund,
estate tax settlement, and many others. VUL's investment component is like Mutual Funds. The
money is invested based on the insured's choice of fund, and it is managed by Professional Fund
Managers. A broad choice of funds is offered including Money Market, Bonds, Balanced,
Equities, Philippine Index, Global Funds, and a lot more. Depending on the choice and
performance of the Fund, the investment component of the VUL can grow long-term. With this,
it is a good investment vehicle to supplement your retirement funding. There are two types of
VUL. The first one is, as the name implies, Single Pay VUL, requires you to pay only once but
you need to shell out a significant amount of money. In this insurance policy, the money is fully
invested in your chosen fund without upfront charges to allow your money to grow faster.

Since the money is fully invested, the insurance component of this policy is generally low. It is
usually 125 percent of the Single Premium paid or the present Fund Value, whichever is higher.

To illustrate, if the Single Premium is P250,000, the insured's coverage is P312,500. This means
that if the insured dies, the beneficiary is assured to receive at least P312,500.¬ In Single Pay
VUL, additional benefits, more commonly known as riders, are not offered. Meaning, the insured
can only avail the death benefit and investment returns.

Moreover, this policy is equipped with Guaranteed Insurability which does not require a good
health standing during application. The other is regular pay VUL. This insurance policy requires
a longer period of premium payment. There are regular pay VUL polices that are payable from 5
to 20 years or whole life and the payment schemes are more flexible. Premiums can be as low as
P1,000 paid either on a monthly, quarterly, semi-annual or annual basis. The insurance coverage
is significantly high for Regular Pay VUL due to the upfront charges. Generally, the coverage is
at least 500 percent of the total premiums paid. For example, the annual premium is P24,000 and
payment term is 10 years. Your insurance coverage will be P24,000 x 10 years x 500 percent =
P1,200,000 Because of the upfront charges, the investment growth is delayed especially on the
1st to 4th year of the policy. Insurance companies have different product designs and pricing on
their VULs. Some VUL policies have fund values even on the 1st and 2nd year of the policy
where charges are at maximum, while some VULs have zero fund values upon its onset. It is
very important to ask your Financial Advisor about the charges to manage expectations about the
growth of the investment.

The 101 On Investing For Your VUL

Discover how to invest in VUL policies!

One of the things that makes the Filipino culture so special is our love for family. As a family-
oriented people, many working professionals nationwide make investing in an insurance policy
one of their top priorities because of the financial security and peace of mind that it can offer
them and their loved ones. 

A VUL insurance is one of the most popular types of policies in the Philippines because of how
it can support both your life goals and your loved ones when you’re gone. If you are interested in
learning how to invest in VUL and discovering its benefits, then this article is for you!

What is a VUL insurance?

A VUL (Variable Universal Life) insurance, also known as Variable Unit-Linked Insurance, is a
combination of a permanent life insurance and an investment package. Unlike other life
insurance policies, a VUL policy allows for a potential for a steady and consistent growth of
your funds. While most insurance policies often focus on guaranteeing coverage, a VUL
provides different kinds of investment opportunities. Some VULs provide opportunities to invest
in both dollar and peso market funds, while others allow investment in trusted global enterprises
and innovative equity ventures.

Why would I choose a VUL over other life insurance policies?

Despite being a popular insurance and investment option, a good VUL program can only be
found in larger insurance providers, such as InLife. Filipinos all over the country opt for the
policy because of the following benefits:

Flexible Funds
While a VUL’s primary use is for safeguarding the future of your loved ones or providing for
your more life goals, one benefit you can enjoy for added peace is how your policy grants you
the ability to withdraw funds from your investments as needed. whether partial or full. With this
benefit of any-time access in mind, the true potential of a VUL shines when you refrain from
withdrawals and allow the funds you invested to grow significantly in the long term. Reap the
rewards of the investments you have already made to address emergency expenses or to enjoy
life’s luxuries every now and then.
Better Money Management
Like many similar insurance policies, a VUL requires a monthly cash out. While this seems like
an ordinary detail for long-time professionals, it holds benefits for younger Filipinos that are
only starting to invest and build on their savings. By setting aside portions of their monthly
income for the policy’s premium, they are forced to save which brings them a step closer to
managing their finances better.  Invest in a policy that encourages you to save and reap the
returns in the long run!

Tax-Free Death Benefit Gains

When we lose a loved one, the last thing we want to think of is spending more just to redeem the
finances that they have worked so hard to provide for us. In case of your death, a VUL policy’s
joint nature, as both insurance and investment, saves your family from the stress and heartache of
having to process additional taxes and documents just to get assets that you have already worked
hard to prepare for them.

Potential Higher Investment Returns

Whether you are a young professional looking to start investing or you have been working on
your career while raising a family, a VUL’s potential high growth rates and consistent growth
enables you to grow your savings faster unlike most traditional insurance policies which usually
focus on the protection aspect. With VULs, the policyholder’s premiums are invested in diverse
financial assets such as bonds, stocks, and other money market mediums, which can yield high
returns.

If any of these benefits appeal to you, get in touch with an InLife advisor and pick out the best
VUL policy for you!

Taxation of Insurance

In the Philippines a 2-percent premium tax, instead of a value-added tax (VAT), is imposed on
total (gross) premiums collected from every person, company or corporation doing life-insurance
business.