What is Variable Universal Life (VUL) Insurance?

Do you have certain life insurance goals you hope to reach? Choosing the right type of plan can help make those goals a reality. At Aflac, we provide Aflac® Life Solutions – Term Life or Whole Life plans to keep your coverage straightforward. We do not offer variable universal life insurance, but it might be an option worth considering depending on your coverage goals. Read on to learn what variable universal life insurance is, its pros and cons, and how this life insurance plan compares to other policies.

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Key Takeaways

Variable universal life insurance is a permanent policy that allows the cash value to be invested in mutual funds, offering potential growth but also exposing it to market risks.
Variable universal life insurance provides flexibility in premium payments and death benefits, but can come with higher costs. Additionally, the cash value must remain above a certain level to keep the policy active.
While Aflac doesn’t offer variable universal life insurance, our term and whole life insurance policies can provide the coverage you need.

What is variable universal life insurance?

Variable universal life insurance is a policy that works like indexed universal life insurance, but the cash value portion of the account is handled differently. This permanent type of life insurance allows the cash value’s growth to be determined by the investment performance in certain mutual funds.¹

In contrast to traditional universal life insurance, the cash value in a variable universal life insurance plan can be directly invested into the market, making it more susceptible to market behavior.¹ This type of risk can allow the cash value in your plan to grow at a fast pace, but it also makes it more vulnerable to market conditions. It is crucial to understand the cash value can undergo extreme losses.¹ We recommend reflecting on this level of risk before making a decision.

With variable universal life insurance plans, the beneficiary gets the death benefit when the policyholder passes.² To access the cash value, the plan may need to be forfeited. If the company does allow the policyholder to borrow or withdraw funds from the cash value, the cash value cannot fall below a certain level. If too much money is borrowed from the cash value, you might need to pay higher premiums to keep the policy.¹

Pros and cons of variable universal life insurance

Variable universal life insurance and universal life insurance are very similar, but they do have some distinct differences. Here are the pros and cons of variable universal life insurance:

Pros: Variable universal life insurance

You can invest the cash value: Variable universal life insurance may be a good investment if these benefits appeal to your needs. First, the way you can invest the cash value in a variable universal life insurance plan may be useful if the mutual funds you choose perform well.

Flexible premium payments: These plans usually have more flexibility around premium payments. You might be able to use the cash value to pay for premiums, but it depends on the company you are working with and their guidelines. Typically, the cash value can’t fall below a certain level, or the plan will lapse.¹

Flexible death benefit: Lastly, there may be flexibility around the death benefit of a variable universal life insurance plan. This depends on the company you choose, but you may be able to change the plan's face value over time.

Cons: Variable universal life insurance

Level of risk: The level of risk in variable universal life insurance is much larger because the money in the cash value account is directly being invested into the market. This means the cash value is at greater risk and isn’t guaranteed year after year.¹

Higher costs: There can be higher costs associated with variable universal life insurance. If you choose to borrow or withdraw funds, the premium payments can be more expensive than what they started at.¹

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Can I cash out a variable universal life insurance policy?

You can access the cash value of your variable universal life insurance policy in several ways, such as:

Policy loan: With a policy loan, you can borrow funds as needed using your cash value as collateral. You can enjoy a flexible repayment schedule and low interest rates.
Withdrawal: If you withdraw funds, you don’t have to pay anything back, but keep in mind this will reduce your death benefit.

Is variable universal life insurance a good investment?

Variable universal life insurance may be a good investment if it is planned wisely. However, there is more risk associated with this type of plan compared to whole and term life insurance policies. The higher risk can create a higher reward, but it can also lead to higher premiums and a drop in the plan's cash value.¹

At Aflac, we do not offer variable universal life insurance, but we strongly encourage you to take a detailed look at each plan and company before committing to a policy.

Should I get variable universal life insurance?

To decide if you should get a variable universal life insurance plan, consider your:

Preferences
Coverage goals
Risk tolerance

If you want a policy with more flexibility that gives you control over your investments, this may be the right option for you. But if you want a less risky and complex policy, consider other options such as whole or term life insurance.

How variable universal life insurance compares to other life insurance policies

If you’re not comfortable with the amount of risk within a variable universal life insurance plan, there are more secure routes to consider. Here are two policies Aflac offers:

Term life insurance: Term life insurance may be a better choice than variable universal life insurance if you only need coverage for a specific period of time. It may be a good option for young families looking to save money upfront or seniors factoring in long-term plans.
Whole life insurance: On the other hand, whole life insurance lasts the entire life of the policyholder and still has a death benefit and cash value component. It may be a smart move if you are looking for more stability, while still providing ample security for loved ones later in life.

Get a life insurance quote today

Variable universal life insurance is a policy that comes with more flexibility and risk. While we do not offer variable universal life insurance at Aflac, we can provide additional information around our whole life and term life insurance plans. Our plans are portable and affordable, and in some cases, you may be able to skip the medical questions. Start chatting with an agent today to learn more.

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