How to Compare Variable Life, Variable Universal Life and Universal Life Policies

A Variable Universal Life (VUL) prospectus generally discloses more about expense charges than is disclosed in a UL policy illustration and contract. VUL has higher expenses resulting from the need to prepare prospectuses, to register with the SEC, and to provide investment flexibility. These additional costs are offset somewhat by lower profit requirements on VUL, where the investment risk is assumed by the policyowner.

Front-end sales loads, premium tax loads, and administrative charges on VUL and UL do not differ materially. Surrender charges on VUL policies are generally lower than those on UL to enable the VUL to comply with SEC limits on sales loads. Investment expenses are higher on VUL because the fee paid to the investment manager is usually higher than the typical investment expense for a UL policy. Profit margins are slightly less for VUL than for UL.

The table above compares and contrasts the key features of universal, variable, and variable universal life. As the table shows, variable universal life combines most of the advantages of universal and variable life. The table below shows how VUL and UL compare from an investor’s perspective.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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