Variable Universal Life (VUL)

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

The policyowner bears the investment risk because cash values are placed in separate-account subaccounts that may lose value — A variable universal life policy combines flexible universal life premiums with investment options held in separate accounts. The policyowner directs how the cash value is invested among subaccounts and bears the investment risk: subaccount values can fall, and cash value is not guaranteed. Although some VUL policies offer a minimum guaranteed death benefit, the cash value itself fluctuates with the underlying portfolio performance.

National insurance concept