Email FacebookTwitterMenu burgerClose thin

Variable Universal Life Insurance Pros and Cons


Variable universal life insurance is permanent life insurance that offers coverage for as long as you live while your premiums are paid. Once you pass away, your beneficiaries can collect a death benefit assuming the policy is paid up. You can also accumulate cash value on the policy that you can borrow against during your lifetime. That’s an advantage you won’t get with term life insurance or some permanent life insurance options. But it’s important to understand variable life insurance pros and cons before purchasing a policy. A financial advisor could provide valuable insights as you consider what kind of life insurance to buy. Let’s compare the pros and cons of variable life insurance.

Variable Universal Life Insurance Defined

Variable universal life insurance is permanent life insurance that can accumulate cash value. You can purchase a variable universal life policy and as long as you pay premiums, your policy remains in effect. That’s different from term life insurance, which only covers you for a set time period.

When you purchase a variable universal life insurance policy, you select a death benefit amount that fits your needs. The insurer agrees to cover you in exchange for regular premium payments. Your premiums are based on a number of factors, including the size of the policy, your age, gender and overall health. As you pay in premiums to the policy, you can accumulate cash value over time.

You can then choose how that cash value is invested inside the policy. The cash value can be invested through subaccounts that function similarly to mutual funds. The variable part comes into play because the return on those investments can vary. That means the better your investments perform, the higher the returns you can earn. With a whole life insurance policy, on the other hand, cash value accumulation is typically set at a fixed rate of return.

As the cash value in your policy increases, you can begin applying it toward your policy premiums. This means you have to pay less out of pocket to maintain your coverage and your death benefit remains unchanged. You could also choose to borrow against the policy’s cash value or withdraw it if necessary.

Assuming that you leave the cash value untouched, your beneficiaries would receive the policy’s full death benefit amount once you pass away. Like proceeds from other types of life insurance policies, you’d be able to pass this benefit on to them tax-free.

Variable Universal Life Insurance: Pros and Cons

Father and children on a picnic

Variable universal life insurance has some attractive features, particularly when you compare it side by side to other kinds of life insurance, that has made it a popular choice. But it’s not right for everyone’s needs or financial situation. Looking at both the pros and cons can make it easier to decide if it fits into your financial plan.


  • Permanent coverage. Variable universal life insurance covers you for life, as long as premiums are paid. That’s an advantage over term life if you anticipate having a longer than average life expectancy.
  • Wealth accumulation. Cash value in a variable universal life insurance policy could be a tool for building wealth if the underlying investments in your subaccounts perform well. You could also use this type of life insurance as an addition to your portfolio if you’ve maxed out your 401(k) or your income prevents you from contributing to a Roth IRA.
  • Tax benefits. As mentioned, purchasing a variable universal life insurance policy can help you to pass on wealth to your beneficiaries tax-free. Aside from that, the death benefit could be an important source of replacement income if you were the primary breadwinner for your family.
  • Cost. Permanent life insurance policies are by nature more expensive than term life policies. But it’s possible that a variable universal life insurance policy could end up costing you less than other types of permanent coverage if your underlying investments are able to cover some or all of your premium amount.


  • Returns are not guaranteed. Your ability to increase cash value in your policy can hinge largely on the performance of subaccount investments. If they underperform, you may not see the level of growth that you were expecting.
  • Fees. Variable universal life insurance policies tend to be heavier on fees than other types of permanent life insurance, including universal life insurance. So it’s important to weigh potential returns against what you might pay in fees.
  • Death benefit depletion. If you’re borrowing against your policy’s cash value or withdrawing it, that can diminish the death benefit left behind for your beneficiaries. That may result in an unpleasant surprise for your loved ones once you pass away.
  • Surrender charges. If you decide that variable universal life insurance is no longer right for you, you may be able to surrender the policy. But doing so could trigger a surrender charge, depending on how long you’ve owned it.

How to Buy Variable Universal Life Insurance

If you’ve weighed universal variable life insurance pros and cons and decided it’s right for you, purchasing a policy is the next step. First, you’ll need to decide how much coverage you need. Using a life insurance calculator at this stage can help you to come up with a reasonable number.

From there, you can begin comparing coverage options from different insurance companies. It may be helpful to get free quotes online to get a sense of what you might pay in terms of premiums and fees for different variable universal life insurance policies.

Remember that you may be required to complete a medical exam as part of the underwriting process. If a medical exam is necessary, you may be able to schedule it to take place at your home, workplace or in a doctor’s office. The results of this exam, along with other details about your health, occupation and hobbies, are used to determine your premium rates.

Also, consider what you’ll be able to invest in when comparing policy options. If you’re able to get specifics on the underlying investment portfolio associated with a particular policy, it can be helpful to look at the performance and cost of those investments. This can help you decide if they align with your risk tolerance and goals.

Bottom Line

Happy Asian family

Variable universal life insurance could offer cash value accumulation and consistent returns over time. The tax-free death benefit you can leave behind for your beneficiaries is also a nice incentive to consider this type of coverage, of course. Regardless of whether you choose this or another type of life insurance, having a policy in place can provide financial peace of mind for you and your loved ones.

Life Insurance Tips

  • As you consider what type of life insurance coverage you need, don’t overlook coverage you may already have. Your employer, for example, may offer group life insurance as part of your employee benefits package. While the policy may be small, say $50,000 or less, it’s good to know that you have some life insurance in place while you shop around for more comprehensive coverage to fit your needs.
  • Consider talking to a financial advisor about whether a variable universal life insurance policy makes sense for you. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Photo credit: ©, ©, ©