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I Make $310k and Have $550k in My 401(k). Should I Get Variable Universal Life Insurance?


Is contributing to a variable universal life insurance policy a good idea? I’m 39 with a $310,000 annual income. I have $550,000 in a 401(k), $13,000 in an HSA, $25,000 in cash savings and a $42,000 investment account balance. I don’t have any student loans or credit card debt I maxed out my annual 401(k) contributions last year at $66,000 and I will do the same this year at $69,000. I also a back door Roth that I contributed $6,500 to last year. 

– James

At a high level it doesn’t appear to me that you have much of a need for a variable universal life policy, but there could still be reasons you may be considering one depending on what your goals. Let’s review what a variable universal life policy is and what it provides. (And if you want to have a more in-depth conversation about your potential insurance needs, connect with a financial advisor.)

What Is a Variable Universal Life (VUL) policy?

Variable universal life insurance policies are a type of whole life policy that provide a death benefit and build cash value. VUL combines features of both variable life and universal life insurance. The main things that set it apart from other types of insurance are:

  • Flexible premiums: Like with universal life policies, you can adjust your monthly premium which provides additional flexibility if you need it.
  • Investing the cash value: Unlike universal life, VUL allows you to invest your cash balance in stock and bond subaccounts. This exposes you to additional risk, but means that your balance may grow more quickly. Variable life insurance allows this as well.

So, VUL policies provide premium flexibility and the potential for additional tax-deferred investment growth. When evaluating whether a VUL is right for you, you’ll want to ask yourself if you need need both of these features. (And if you need additional help evaluating your financial needs, consider working with a financial advisor.)

Do You Need Premium Flexibility?

A man looks over his options for variable universal life insurance policies.

I don’t have a full picture of your finances, but you seem to have your budget in order. You’re saving a very healthy amount – at least 24% of your income. If you’re doing that consistently then you must be financially stable and have the necessary discipline. As a result, premium flexibility may not be a big deal to you.

It also sounds like you don’t carry any significant debt. This suggests that you not only live within your means (not accumulating debt), but also that you have fewer things pulling at your cash flow (debt payments). Then, you also have cash savings and an investment account you could rely on if you needed it. 

Unless there are details of your situation that I’m not seeing, the ability to adjust your life insurance premiums may not be much of a priority for you. (But if you need a more detailed and thorough examination of your finances and long-term trajectory, speak with a financial advisor.)

Do You Need Additional Tax-Deferral?

As I’ve already mentioned, you’re saving a healthy amount. If we assume even a somewhat aggressive retirement age of 60, that gives you another 21 years of saving.

If you continue to contribute up to the total 401(k) contribution limit of 69,000 per year (including employer matches), and max out your backdoor Roth at $6,500 per year, you’d have about $6.8 million by the time you’re 60, assuming an 8% average return. For simplicity’s sake, this projection ignores any annual earnings or contribution increases, as well as any catch-up contributions you may make when you reach age 50.

As a rough ballpark estimate, I’d say you’re well on your way to retirement readiness and more tax-deferred savings might not be something you need. But, if you’d like to save more, a VUL policy certainly provides that option. (And you want an expert’s take on your plan for retirement or need help preparing for retirement, talk to a financial advisor.)

What About Life Insurance?

Life insurance can play an important role in a person's financial plan.

Of course, we can’t forget the principal reason to purchase any life insurance product: the death benefit. You may very well want or need a life insurance policy to protect family or other beneficiaries. However, if that’s your primary need then you could purchase the appropriate amount in a term policy, which is a much more cost-effective and straightforward way of obtaining life insurance coverage.

One benefit a VUL or other type of permanent insurance is that you can maintain the policy for life. This may or may not be important to you. If it is, I’d suggest comparing a VUL with other whole life options, as well. They will often be simpler and have lower premiums. (But if you need help determining how VUL or other types of life insurance polices may fit within your financial plan, talk it over with a financial advisor.)

Bottom Line

VUL policies are complex and relatively expensive compared to other options. I recommend assessing exactly what it is you want and need, and then evaluate whether a VUL is the best way to get it based on the discussion above. If you don’t need or want all the benefits a VUL provides, it may make more sense to invest your money elsewhere or buy a different type of life insurance policy.

Life Insurance Tips

  • SmartAsset has a variety of tools to help you determine how much coverage to potentially purchase and the types of policies that are out there. This calculator can help you estimate how much life insurance you may want to buy, while our rate quote tool can help you comparison shop for a rate that potentially meets your budget.
  • Assessing your needs for life insurance and surveying the market of options can be complicated and overwhelming. That’s where having an expert in your corner, like a financial advisor, can help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Brandon Renfro, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email and your question may be answered in a future column.

Please note that Brandon is not a participant in SmartAsset AMP, and he has been compensated for this article. Some reader-submitted questions are edited for clarity or brevity.

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