Universal Life vs Variable Universal Life

It has a guaranteed minimum death benefit regardless of investment performance — Traditional variable life insurance invests premiums in subaccounts held in a separate account, so cash values rise and fall with investment performance. However, the policy guarantees a minimum death benefit equal to the face amount stated at issue. Investment performance can increase the cash value and drive the death benefit above the guaranteed minimum, but the benefit cannot fall below it. This floor is what distinguishes variable life from variable universal life, which does not offer the same guaranteed minimum death benefit.

National insurance concept

Lets the policyowner direct premiums into separate-account subaccounts whose investment risk is borne by the policyowner — VUL combines the flexible premiums and adjustable coverage of universal life with investment in separate-account subaccounts that behave like mutual funds. The policyowner directs where the premiums are invested and bears the investment risk, so the cash value and the coverage can fluctuate with investment performance. Fixed universal life instead credits interest at a rate declared by the insurer, subject to a guaranteed minimum, and the insurer bears the investment risk. Because the separate accounts are considered securities, VUL is also subject to securities regulation in addition to insurance regulation. The distinction between the two products turns on who bears the investment risk.

National insurance concept