What is the Difference Between Variable and Variable Universal Life Insurance?

There are many different types of permanent life insurance. A lot of people like the concept of having a permanent life insurance policy because of the very fact that it is permanent. It offers them the assurance that they need so they don't have to worry about having a protective contract on in the unexpected event of death. A permanent life insurance policy will always be there, and for some, the higher prices are usually worth it. But if you are looking for a permanent life insurance, the decision-making process on what kind of insurance you want, is not over yet. You still have to choose what specific kind of life insurance is best for you.

Two of the commonly confused types of insurance are variable life insurance, and variable universal life insurance. So in what ways do these two types of permanent life insurance differ?

Well, let's look into variable life insurance first. Variable life insurance is a permanent life insurance policy wherein part of the premiums that you pay will be invested in the same company but in a separate account. The account will be like an investment fund. That part of the money will earn interest, which are, in fact, tax-free. It is up to you whether you want the premium portion invested into bonds, mutual funds, or even stocks, and a lot more, depending on your insurance provider. The tax-free interest is yours to spend, of course, but most of the time, people use the earnings to pay off their premiums, so that means they just need to invest large once, and just use the earnings to pay off the premiums, without having to invest some more into the policy every month.

What is risky, however, about this is that the cash value, or the cash you invest, including the death benefits are vulnerable to the fund performance that also affects interest. So in a scenario where fund performance is bad, it is hard to control the effects this will have on your very policy.

Turning to variable universal life insurance, also known as VUL, is a combination of variable life insurance and universal life insurance. Since variable life insurance is, in many ways, similar to a whole life insurance in terms of lack of flexibility, the universal factor adds the flexibility needed by both whole life insurance and variable life insurance, which the universal life insurance has, too. This means that variable universal life insurance, along with the death benefits, and the investment fund with promises of tax-deferred earnings, can also be adjustable based on your insurance needs as they change over the years. The factors that you can play around with are the amount of your insurance, the mode or schedule of payment that you prefer, and the likes.

This means that you can also adjust your death benefits, so there is less risk in investing in a variable universal life insurance policy because it is more flexible. But don't worry, because all the good things of the variable life insurance still carries over to VUL insurance, such as the ability to invest part of your premium payments in an investment option of your own. Of course, any earnings from your VUL insurance policy will also be tax-deferred.

All in all, just as universal life insurance is better than whole life, variable universal life insurance gives the same amount of benefits as just variable life, but poses lesser risks.