Variable Universal Life (VUL), which also is called flexible premium variable life or universal life II, is a combination of universal life and variable life. VUL offers policyowners the flexibility of universal life (UL) with respect to premium payments and death benefits. Specifically, VUL owners can:
- determine the timing and amount of premium payments (within limits);
- skip a premium payment if the cash value is sufficient to cover the mortality and expense charges;
- adjust the amount of the death benefit in response to inflation or changing needs (subject, generally, to policy minimums and, with respect to increases, evidence of insurability requirements);
- withdraw money without creating a policy loan and without an interest charge if there is sufficient cash value to cover mortality and expense charges; and
- choose between two death benefit options similar to options A (or I) and B (or II) for UL policies. Under option A, the death benefit remains level, similar to a traditional policy. Under option B, the death benefit is equal to a level pure insurance amount plus the cash value. The death benefit of a VUL policy is not variable in the same sense as the death benefit of a VL policy. Under option B, the death benefit will vary directly, not indirectly by formula, with changes in the cash value. Under option A, the death benefit is level. However, the death benefit of VUL policies is flexible or adjustable, within limits and subject to insurability requirements, at the discretion of the policyowner.
VUL policyowners receive periodic reports that explicitly show mortality and expense charges and changes in the investment value of their accounts.
Because variable life products are considered securities, the insurer (or insurer’s agent) must give the prospective purchasers a prospectus. The prospectus contains the identity and nature of the insurer’s business, the use to which the insurer will put the premiums, financial information on the insurer, and the investment characteristics of the product, as well as the policy’s expenses, fees, loads, and policyowner rights. In addition, the agent must be properly licensed to sell security products.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM