selecting the right life insurance policy can provide peace of mind for you and your family but with so many life insurance options available to consumers it’s easy to be overwhelmed by the variety of policies available today this is especially true when exploring whole life insurance options which are more complex than term life policies a variable universal life insurance policy or vul policy for short is a permanent life insurance policy that can be an important part of your longterm financial plans a vul not only provides a death benefit but also allows for investments and potential capital gains during the life of the policy because they operate as a hybrid of traditional life insurance and an investment vehicle these policies can be a little more complex they have unique benefits and features to consider before a purchase in this article we at the marketwatch guides team will review details of vul policies to help you understand if one could make sense for your investment objectives and life insurance coverage goals variable life insurance is a hybrid of traditional life insurance coverage with a set death benefit paired with underlying investment optionsthe investments can increase or decrease the policy’s value over time the initial money used to secure the policy periodic premiums paid into the policy and the investment performance in policy combine to make up the policy’s cash value because variable life policies combine insurance with investing there are several tax advantages and tax consequences associated with a vul policy depending on the account custodian the policy may have fees associated with your account maintenance and any policy loans you take that gives complexity to these policies it’s important to understand the insurance provider you are working with and the funds you will be investing if you do purchase a vul policy while most people are familiar with term life or whole life insurance policy rules variable universal life policies come with special coverages that can be advantageous to certain investors major components of the variable universal life policy structure include   permanent protection vul policies differ from term life insurance the most common type of coverage in many ways the most obvious difference is the length of coverage vul policies are structured as permanent insurance with a guaranteed death benefit based on investment choices while that death benefit’s value can fluctuate because of fees market performance and the amount of premiums paid as long as the policy is in place beneficiaries are entitled to a benefit when the insured passes away   cash value loans another special component of a variable universal life insurance policy is the ability for a policyholder to take out loans against the cash value of the policy while you have to pay interest on these loans they can be taxfree and aren’t usually subject to additional charges however loans against a vul policy can be dangerous they decrease the cash value if fees associated with the policy eclipse the cash value the policy will lapse   additional riders variable universal life insurance companies offer customizable coverage by adding optional coverage through policy riders these riders ensure your policy meets your needs but they usually cost more to include options like disability coverage and longterm care insurance are examples of how to customize your policy   taxdeferred cash value growth the investment component of a vul policy can increase its value and you can borrow against the increased value or fund expenses while you’re alive while the opportunity for growth potential is a major perk the fact that fees take a portion of the amount contributed make a vul policy unsuitable for a shortterm savings vehicle a few key elements to understand about a variable universal life insurance policy are the policy’s death benefit subaccounts that you can use for investing and the premiums associated with the policy understanding each component and how they affect the value of the policy will help you make an informed decision as a consumer the variability in a vul policy comes from the ability to change your death benefit amount throughout the life of the policy as your life circumstances change your benefit can go up or down depending on your needs significant changes like taking on or paying off a mortgage sending a child to college investing in a business or adding or removing significant debt from your portfolio could all be reasons to adjust your death benefit there is no minimum death benefit in a vul policy the policy’s premiums become more expensive as the death benefit rises and less expensive as it decreases premiums paid toward this death benefit fluctuate accordingly the money you put into your vul policy covers your death benefit’s current value the fees associated with the policy itself and running your account the remainder is put toward the cash value of the policy which gets held in a subaccount or in multiple subaccounts variable subaccounts let you invest in one of your policy provider’s approved vehicles typically a mutual fund fixed subaccounts provide a guaranteed rate of return and work best for the most riskaverse policyholders the most unique thing about a variable universal life insurance policy is the ability to change the premium you pay as you see fit if you pay a greater premium the policy’s cash value rises if the cash value becomes large enough you won’t have to worry about policy lapses because the excess cash will cover fees and premiums conversely if you pay a minimum amount of premiums the cash value of the policy can decrease when that happens you might have to make large payments to keep the policy active especially if your investments don’t perform now that you understand some key elements of a vul policy it’s easy to see how they can be beneficial for some consumers but too complex for others selecting a partner who can help you navigate the correct subaccount investments and advise on premium payments is helpful but for most people to have a successful vul experience they must manage the account actively cost and cash value of vul the initial cost of a variable universal life insurance policy pays for the death benefit amount and also funds the cash value that cash can go into subaccounts and get invested from there because the policy is customizable that initial investment can change based on the amount of death benefit you’re seeking and how much you would like to distribute into the savings and investment portion of the policy from there you’ll have the option to pay a flexible premium the premium must cover the fees to maintain the account but any excess money gets distributed into a savings account you then have the option to move it into a subaccount to make investments a larger monthly premium paid means your cash value increases and it also gives you more investing power the cash value of the policy will fluctuate daily if you invest so if you’re considering a vul policy you must be comfortable with the risk of loss that accompanies investment on the other hand savvy investors can increase their policy’s cash value if their stock selections perform well fees associated with a vul policy can make it difficult to maintain and can put the policy at risk of lapse especially if your investments struggle surrender charges are due for early withdrawals sales fees due to the insurer loan interest mortality and expense risk fees are just a few of the different charges associated with the normal actions of the account vul policyholders should not be passive if your account’s cash value decreases too much and there is not enough value to cover the account’s fees then you’ll be in danger of lapse and could lose your investment and your death benefit it’s possible that you’ll need to afford higher monthly premiums to keep the policy active variable universal life insurance policies aren’t for everyone they’re complex and they require active management the best life insurance for any given person depends on their individual circumstances and while vul policies are not the top choice for cheap life insurance their investment benefits may make it an ideal choice as an additional savings vehicle the best fit for a vul policy is someone who isn’t riskaverse enjoys investing and understands that loss is a possibility because there is no guaranteed death benefit it is not recommended that a vul policy be your only safety net if your family will have significant debt in the event of your death vul policies are usually taken out by people with other policies in place to account for estate planning and the variable universal policy is used for investing saving additional money and the tax implications that come with the policy’s investment component a vul policy can be a smart investment if you have a deep working knowledge of the stock market or if you have the means to hire someone to manage the policy if you have your estate planning needs in order with variable or whole life policies and are a savvy investor a vul policy might make sense methodology our system for ranking the best life insurance companies our goal at the guides home team is to provide you with comprehensive unbiased recommendations you can trust to rate and rank life insurance companies we created a thorough methodology and analyzed each company by combing through online policy information speaking to agents via phone reading customer reviews for insight into the typical customer experience and reviewing thirdparty financial reliability scores after collecting this data we scored each company in the following categories coverage riders availability and ease of use and brand trust to learn more read our full life insurance methodology for reviewing and scoring providers sarah horvath is one of the home service industry’s most accomplished writers her specialties include writing about home warranties insurance home improvement and household finances you can find her writing published through distributors like housemethod architectural digest good housekeeping and more when not writing she enjoys spending time in her home in orlando with her fiance and parrot