VUL Explained: 2025 Guide to Variable Universal Life

Life insurance is a cornerstone of sound financial planning, providing peace of mind and security for your loved ones. However, navigating the different types of policies available can feel overwhelming. Term life, whole life, universal life – and then there’s Variable Universal Life (VUL). What exactly is VUL, and could it be the right choice for you? This guide, updated for 2025, aims to demystify Variable Universal Life insurance, exploring its features, benefits, risks, and who might be a good fit.

Making the right insurance decision requires understanding the nuances of each option. It’s not just about finding a policy; it’s about finding the policy that aligns perfectly with your financial goals, risk tolerance, and family’s needs. That’s where expert guidance becomes invaluable.

At Insurance By Heroes, we understand the importance of making informed choices. Founded by a former first responder and military spouse, our agency is staffed by professionals who share a background in public service. We bring the values of integrity, service, and trust – core tenets of our previous careers – to helping families like yours secure their financial future. As an independent agency, we aren’t tied to any single insurance company. Instead, we partner with dozens of top-rated carriers across the nation. This allows us to shop the market extensively on your behalf, comparing options and tailoring coverage specifically to your unique situation. Whether you’re considering VUL or another type of policy, our goal is to provide clear, unbiased advice to help you find the best possible fit.

What is Variable Universal Life (VUL) Insurance?

Variable Universal Life (VUL) insurance is a type of permanent life insurance policy that combines a death benefit – the payout your beneficiaries receive upon your passing – with a separate cash value account. What makes VUL distinct is that the cash value component can be invested in a variety of separate accounts, often referred to as sub-accounts. These sub-accounts typically hold investments similar to mutual funds, such as stocks, bonds, and money market instruments.

Think of it like this: part of your premium payment covers the cost of the life insurance protection itself (including administrative fees and mortality charges), while the remaining portion is invested based on the sub-accounts you select. The performance of these chosen investments directly impacts the growth (or potential decline) of your policy’s cash value over time.

Key characteristics of VUL insurance include:

• Investment Component: The cash value is tied to the performance of underlying investment options, offering the potential for greater returns compared to traditional whole life policies, but also introducing market risk.
• Flexibility: VUL policies often provide flexibility regarding premium payments. Within certain limits, you may be able to adjust the amount and frequency of your payments. You might also have the ability to adjust the death benefit amount, though increases usually require further underwriting.
• Permanent Coverage: Like other forms of permanent insurance, VUL is designed to provide coverage for your entire life, as long as the policy retains sufficient cash value to cover the internal charges or required premiums are paid.
• Risk Factor: Because the cash value is linked to market performance, it can fluctuate. Poor investment results can lead to a decrease in cash value, potentially requiring you to pay higher premiums to prevent the policy from lapsing.

Understanding these fundamental aspects is the first step. However, the specifics can vary significantly from one carrier to another. Comparing policies from different companies, including exploring options like a Union Security Insurance Company variable universal life product alongside others, is essential. An independent agency like Insurance By Heroes is positioned to help you navigate these comparisons effectively.

How Does VUL Work? A Deeper Dive

Let’s break down the mechanics of a VUL policy:

Premium Allocation: When you pay your premium, the insurance company first deducts various charges. These typically include:

• Cost of Insurance (COI): This covers the pure death benefit protection. The COI usually increases as you age.
• Administrative Fees: Charges for policy maintenance and administration.
• Premium Load Charges: Fees deducted directly from the premium payment.
• Fund Management Fees: Expenses associated with managing the underlying investment sub-accounts, similar to expense ratios in mutual funds.
• Surrender Charges: Fees applied if you surrender (cancel) the policy, especially within the early years.

The net amount remaining after these deductions is allocated to the investment sub-accounts you have chosen.

Sub-Account Selection: You typically get to choose how your cash value is invested from a menu of available sub-accounts offered by the insurance carrier. These options range in risk and potential return, often including:

• Equity funds (stocks)
• Bond funds
• Balanced funds (mix of stocks and bonds)
• Money market funds (lower risk, lower return potential)
• International funds
• Specialty sector funds

Your investment choices should align with your risk tolerance and long-term financial objectives.

Cash Value Growth (and Risk): The primary appeal of VUL is the potential for the cash value to grow based on the performance of your chosen investments. This growth occurs on a tax-deferred basis, meaning you don’t pay taxes on the gains as they accumulate within the policy.

However, this potential comes with inherent risk. If your chosen investments perform poorly, the cash value can decline. If the cash value drops significantly, it might become insufficient to cover the policy’s internal charges (like the COI). In such a scenario, you might need to pay substantially higher premiums out-of-pocket to keep the policy in force. If you fail to do so, the policy could lapse, resulting in the loss of your coverage and potentially any remaining cash value (after surrender charges).

Policy Loans and Withdrawals: One feature of permanent life insurance, including VUL, is the ability to access the accumulated cash value while you are still living. This is typically done through:

• Policy Loans: You can borrow against the cash value. Loans are generally tax-free, but they accrue interest. If you pass away with an outstanding loan, the death benefit paid to your beneficiaries will be reduced by the loan amount plus accrued interest.
• Withdrawals: You can withdraw portions of the cash value. Withdrawals up to your basis (the total amount of premiums paid into the policy) are typically tax-free. Withdrawals exceeding your basis are usually taxed as ordinary income. Withdrawals will reduce the cash value and may reduce the death benefit.

Navigating these features – premium flexibility, investment choices, accessing cash value, and managing risk – requires careful consideration. The specifics, fees, and investment options can differ greatly between insurance companies. At Insurance By Heroes, our team helps clients understand these complex mechanisms across policies from dozens of carriers, ensuring you see the full picture, not just one company’s offering.

Pros of Variable Universal Life Insurance

VUL policies offer several potential advantages that make them attractive to certain individuals:

• Higher Growth Potential: Compared to traditional whole life insurance with its guaranteed, but often modest, cash value growth, VUL offers the possibility of significantly higher returns. By investing in market-linked sub-accounts, your cash value has the potential to grow more rapidly, especially over the long term during favorable market conditions.
• Flexibility: VUL policies are known for their flexibility. Policyholders often have the ability to adjust their premium payments – paying more in some years, less in others, or even skipping payments if the cash value is sufficient to cover charges. They may also be able to adjust the death benefit amount over time (subject to underwriting for increases). This adaptability can be valuable if your financial situation changes.
• Tax-Deferred Growth: The cash value within a VUL policy grows on a tax-deferred basis. You do not pay annual income taxes on the investment gains earned within the policy’s sub-accounts. This allows your money to compound more effectively over time compared to a taxable investment account.
• Tax-Favored Access to Cash: As mentioned earlier, you can typically access the cash value through policy loans, which are generally income-tax-free. Withdrawals up to your premium basis are also usually tax-free. This provides a potential source of funds for emergencies, opportunities, or supplemental retirement income, though accessing cash value will reduce the death benefit and could have tax implications if the policy lapses or is surrendered.
• Permanent Death Benefit: VUL provides a death benefit intended to last your entire lifetime, offering permanent protection for your beneficiaries, provided the policy remains adequately funded.

While these benefits sound appealing, it’s crucial to weigh them against the associated risks and costs. The suitability of VUL depends entirely on your individual circumstances, financial goals, and comfort level with investment risk. The team at Insurance By Heroes, drawing on our background of service and commitment, focuses on helping you determine if these potential advantages align with your needs by comparing VUL policies from numerous carriers against other insurance solutions.

Cons and Risks of Variable Universal Life Insurance

Despite its potential benefits, VUL insurance carries significant risks and drawbacks that must be carefully considered:

• Investment Risk: This is the most defining characteristic and primary risk of VUL. Because the cash value performance is tied directly to underlying market investments, it is subject to market volatility. Poor investment performance can cause the cash value to stagnate or even decline significantly. If the cash value falls too low, it may not be sufficient to cover the policy’s internal costs (like the rising cost of insurance as you age), potentially requiring you to pay much higher premiums than anticipated or risk the policy lapsing altogether. A lapsed policy means loss of coverage and potentially significant surrender charges or tax consequences.
• Complexity: VUL policies are inherently more complex than term life or traditional whole life insurance. Understanding the fee structure, investment options, policy mechanics, and the interplay between cash value performance and policy charges requires a significant level of financial literacy and ongoing attention. Prospectuses for the underlying investments can be lengthy and technical.
• Fees and Charges: VUL policies typically come with multiple layers of fees and charges, which can significantly impact your net returns. These can include:
  • Mortality and Expense (M&E) Risk Charges
  • Cost of Insurance (COI) charges
  • Administrative fees
  • Premium load fees
  • Investment management fees for the sub-accounts
  • Fees for optional riders
  • Surrender charges (often high in the early years)

  These fees can eat into your cash value accumulation, especially if investment returns are modest or negative. Comparing the fee structures across different VUL policies from various carriers is absolutely critical.

• Requires Active Management: Unlike a “set-it-and-forget-it” whole life policy, VUL often requires ongoing monitoring. You may need to periodically review your sub-account allocations and potentially make adjustments based on market conditions and your changing financial goals or risk tolerance. You also need to monitor the policy’s performance to ensure the cash value is sufficient to sustain the policy long-term.
• Potential for Higher Premiums Later: If investment performance is poor or if initial premiums were set too low (minimum funding), the policy might require substantially higher premium payments later in life to prevent it from lapsing, precisely when it might be harder to afford them.

These risks underscore why VUL is not suitable for everyone. It demands a higher tolerance for risk and a deeper understanding of investments compared to other life insurance types. When considering VUL, perhaps looking at options from providers like Union Security Insurance Company or others, it’s vital to have a clear picture of these potential downsides. Insurance By Heroes emphasizes transparency; our commitment, rooted in our public service backgrounds, is to ensure clients fully understand both the upside potential and the downside risks by comparing multiple options side-by-side.

Who Should Consider VUL Insurance?

Given its unique blend of life insurance protection, investment potential, and inherent risks, Variable Universal Life insurance is typically most suitable for specific types of individuals:

• Individuals with Higher Risk Tolerance: If you are comfortable with market fluctuations and understand investment principles, the potential for higher returns in VUL might appeal to you more than the guarantees offered by whole life insurance.
• Long-Term Investors: VUL is designed as a long-term financial tool. The potential benefits of tax-deferred growth and higher returns are generally realized over many years or decades. It’s usually not appropriate for short-term savings or investment goals due to fees, surrender charges, and market volatility.
• Those Seeking Premium Flexibility: Individuals whose income may fluctuate or who anticipate changes in their ability to pay premiums might value the premium flexibility offered by many VUL policies (within limits).
• High-Net-Worth Individuals Seeking Estate Planning Tools: VUL can be used in sophisticated estate planning strategies, providing liquidity to pay estate taxes or pass wealth to heirs in a potentially tax-advantaged manner. The investment component offers growth potential for the death benefit.
• People Who Have Maxed Out Other Tax-Advantaged Retirement Accounts: If you are already contributing the maximum allowed to your 401(k)s, IRAs, and other retirement plans, VUL can offer an additional vehicle for tax-deferred investment growth, along with a death benefit.
• Disciplined Savers/Investors: Successfully managing a VUL policy often requires consistent funding (especially in early years or down markets) and periodic monitoring of investment performance.

Conversely, VUL is generally NOT suitable for:

• Individuals with a low tolerance for risk.
• Those needing guaranteed cash value growth or guaranteed premiums.
• People looking for simple, low-cost life insurance (term life is usually better for pure protection needs).
• Individuals who may need to access their funds in the short term (due to surrender charges).
• Those uncomfortable with managing investments or monitoring policy performance.

Determining suitability requires a thorough analysis of your complete financial picture, goals, and risk profile. This isn’t a decision to make lightly or based solely on potential returns. At Insurance By Heroes, we take the time to understand your unique situation. As an independent agency founded by service-oriented professionals, we don’t push specific products. Instead, we analyze your needs and then shop the market, comparing VUL policies from numerous carriers alongside other life insurance options to find the solution that truly serves you best.

VUL vs. Other Life Insurance Types: Key Differences

Understanding how VUL stacks up against other common types of life insurance is crucial for making an informed decision. Here’s a comparison:

VUL vs. Term Life Insurance

• Coverage Duration: Term life provides coverage for a specific period (e.g., 10, 20, 30 years). VUL offers permanent coverage for your entire life (if funded properly).
• Cash Value: Term life typically has no cash value component. VUL builds cash value based on investment performance.
• Cost: Term life premiums are generally much lower initially than VUL premiums for the same death benefit, especially for younger individuals.
• Complexity & Risk: Term life is simple and straightforward. VUL is complex and involves investment risk.
• Purpose: Term life is best for covering temporary needs (e.g., mortgage, income replacement during working years). VUL suits long-term needs, potential cash accumulation, and higher risk tolerance.

VUL vs. Whole Life Insurance

• Cash Value Growth: Whole life offers guaranteed cash value growth based on rates set by the insurer, plus potential dividends (not guaranteed). VUL cash value growth depends on the performance of chosen market investments (not guaranteed, potential for loss).
• Risk: Whole life has very low risk regarding cash value growth (guaranteed). VUL has high investment risk.
• Premiums: Whole life typically has fixed, guaranteed premiums that never change. VUL premiums can be flexible but may need to increase if cash value underperforms.
• Flexibility: VUL generally offers more flexibility in premiums and death benefits than traditional whole life.
• Guarantees: Whole life emphasizes guarantees (death benefit, cash value growth, premiums). VUL emphasizes potential growth and flexibility, with fewer guarantees.

VUL vs. Universal Life (UL) Insurance

• Cash Value Growth: Traditional UL cash value grows based on current interest rates declared by the insurer, usually with a minimum guaranteed rate. VUL cash value growth is tied to market sub-account performance.
• Risk: UL has interest rate risk (rates could be low) but generally lower risk than VUL. VUL has direct market risk.
• Potential Return: VUL has higher upside potential (and downside risk) than traditional UL.
• Flexibility: Both UL and VUL offer premium and death benefit flexibility.

VUL vs. Indexed Universal Life (IUL) Insurance

• Cash Value Growth: IUL cash value growth is linked to the performance of a market index (like the S&P 500), but usually with a “floor” (often 0%, protecting against market losses) and a “cap” or “participation rate” (limiting upside potential). VUL growth is directly tied to sub-account performance with no inherent caps or floors (potential for full market gains and losses).
• Risk: IUL offers downside protection against market losses within the index-linked account but limits upside potential. VUL offers full upside potential but also full downside risk.
• Complexity: Both IUL and VUL are complex products, though the crediting methods differ significantly.

The “best” type of policy truly depends on your individual needs, budget, risk tolerance, and financial goals. There is no single right answer for everyone. This is precisely why working with an independent agency like Insurance By Heroes is so advantageous. We aren’t limited to the products of one company, whether it’s Union Security Insurance Company, Nationwide, Prudential, or any other. We can objectively compare VUL against term, whole life, UL, and IUL policies from dozens of carriers to find the optimal solution tailored specifically for you.

Understanding VUL Illustrations and Projections

When considering a VUL policy, you will inevitably encounter policy illustrations. These documents are crucial, but often complex and easily misunderstood.

An illustration is a projection of how the policy *might* perform over time based on a set of assumptions. It typically shows hypothetical future values for the death benefit and cash value year by year.

Key things to understand about VUL illustrations:

• Hypothetical Nature: Illustrations are not guarantees (except for explicitly stated guaranteed elements). They show potential outcomes based on assumed rates of return for the investment sub-accounts.
• Assumed Rate of Return: Illustrations often show projections at various rates of return (e.g., 0%, 6%, 9%, or based on historical performance, capped at a maximum allowed rate). It’s crucial to focus not just on the optimistic scenarios but also on the lower or 0% return scenarios to understand the impact of poor market performance. The actual return your policy achieves will likely differ from these assumptions.
• Guaranteed vs. Non-Guaranteed Elements: Illustrations must clearly distinguish between guaranteed and non-guaranteed elements. Guaranteed elements might include the minimum death benefit (if premiums are paid) and maximum charges. Non-guaranteed elements include the cash value growth based on assumed returns, and potentially the illustrated premiums needed to sustain the policy under those assumptions.
• Impact of Charges: Understand how policy charges (COI, M&E, admin fees, fund fees) are deducted and how they impact the net cash value growth, especially in low-return scenarios. The illustration should detail these charges.
• Premium Outlay: Illustrations show a planned premium schedule. Be aware that if the actual investment performance is lower than illustrated, the planned premium may be insufficient to keep the policy in force long-term. You might need to pay higher premiums later.

Treat illustrations as potential roadmaps, not as promises. Scrutinize the underlying assumptions, particularly the rate of return used for non-guaranteed projections. A policy that looks great based on a high assumed rate of return might look very different (and potentially unsustainable) at a lower, more conservative rate.

At Insurance By Heroes, our experienced team helps clients decipher these complex illustrations from various carriers. We focus on explaining the assumptions, highlighting the risks shown in lower-return scenarios, and ensuring you understand the potential range of outcomes before making a commitment. Our goal is clarity and informed decision-making.

Considering Specific Carriers: Union Security Insurance Company Variable Universal Life Example

When researching VUL, you might come across specific products from various insurance companies, such as a Union Security Insurance Company variable universal life policy. It’s natural to look into the offerings of known carriers. Companies like Union Security (often associated with parent companies like Assurant or related entities, depending on the specific product history and line of business) may offer VUL policies with their own unique set of features, sub-account options, and fee structures.

A VUL policy from any specific carrier, including one potentially labeled under the Union Security name or its affiliates, would likely include the core VUL components: a death benefit, a cash value account linked to investment sub-accounts, and some degree of premium flexibility. The specific range of investment options, the internal policy costs (M&E charges, COI rates, administrative fees), rider availability, and underwriting standards would be unique to that particular product and company.

However, it is absolutely critical to remember this: **Union Security Insurance Company, or any single insurer, represents just one option among a vast marketplace.** Their VUL product might have competitive features, excellent investment choices, or low fees for certain scenarios. But it might also have higher costs, fewer investment options, or features that are less suitable for *your specific needs* compared to policies offered by other top-rated companies like Nationwide, Prudential, Lincoln Financial, Pacific Life, John Hancock, and dozens more.

Focusing solely on one company’s product without comparing it to the broader market is a significant disadvantage. Fees can vary dramatically. Investment option quality and breadth differ. Underwriting guidelines can impact your eligibility and premium rates. A policy feature that seems minor could have major implications down the road.

This is where Insurance By Heroes provides immense value. As an independent agency, our loyalty is exclusively to you, our client. We are not captive agents required to promote one company’s products. We actively compare VUL policies (and other life insurance types) from providers like Union Security Insurance Company (if applicable and competitive) alongside dozens of other leading carriers. We analyze the fine print, compare costs, evaluate investment platforms, and match the policy’s strengths to your individual requirements. Our mission, driven by our background in serving others, is to ensure you get the policy that offers the best combination of features, performance potential, cost-effectiveness, and carrier strength for *your* situation, not just the one product a single company happens to offer.

Why Choose an Independent Agency like Insurance By Heroes for VUL?

Navigating the complexities of Variable Universal Life insurance requires expertise and unbiased guidance. Choosing the right partner to help you through this process is as important as choosing the right policy. Here’s why working with an independent agency like Insurance By Heroes is particularly beneficial, especially for complex products like VUL:

• Access to the Entire Market: Unlike captive agents who represent only one insurance company, we are independent. Insurance By Heroes partners with dozens of the nation’s top insurance carriers. This means we can shop the entire market for you, comparing VUL policies (and alternatives) from a wide range of insurers to find the most competitive rates and suitable features.
• Unbiased, Client-Focused Advice: Our recommendations are based solely on your best interests. We don’t have quotas to meet for any specific company, like Union Security Insurance Company or any other. Our focus is on understanding your needs, explaining your options clearly, and helping you select the policy that aligns perfectly with your goals and risk tolerance. Our loyalty is to you, not an insurance carrier.
• Tailored Solutions: VUL policies are not one-size-fits-all. Features, fees, investment options, and riders vary significantly between carriers. We take the time to understand your unique financial situation, objectives, and risk profile. Then, we leverage our access to multiple carriers to find the VUL policy (or determine if another type of insurance is better) with the specific features and structure that best suits you.
• Expertise in Complex Products: VUL is one of the most complex life insurance products available. Understanding the investment risks, fee structures, tax implications, and long-term performance dynamics requires specialized knowledge. The team at Insurance By Heroes has the experience and training to navigate these complexities, explain them in plain language, and help you avoid potential pitfalls.
• Commitment to Service and Trust: Insurance By Heroes was founded by a former first responder and military spouse and is staffed by professionals with similar backgrounds in public service. We bring the core values of integrity, dedication, and putting others first to the insurance world. We understand the importance of trust and clear communication, especially when dealing with significant financial decisions. We’re committed to building long-term relationships based on reliable advice and exceptional service.

Choosing VUL involves significant financial considerations and potential risks. Partnering with an independent agency that prioritizes your needs, offers broad market access, and operates with integrity ensures you make a well-informed decision.

Take Control of Your Financial Future Today

Variable Universal Life insurance offers a unique combination of permanent life insurance protection, premium flexibility, and the potential for market-linked cash value growth. However, it also comes with inherent investment risks, complexity, and significant fees that demand careful consideration and understanding.

Is VUL the right tool for your financial strategy? Could a policy from a carrier like Union Security Insurance Company be a fit, or would options from other top insurers offer better value or features for your specific situation? How does VUL compare to whole life, term life, or indexed universal life for your needs? Answering these questions requires personalized analysis and access to a wide range of options.

Don’t navigate the complex insurance market alone. The experienced and dedicated team at Insurance By Heroes is here to help. As an independent agency founded by public servants and military family members, we are committed to providing clear, unbiased advice. We leverage our relationships with dozens of top-rated insurance carriers to shop the market and find the policy that truly fits your life and goals.

Ready to explore your options and get clarity on the best life insurance solution for you? Take the first step towards securing your financial future and protecting your loved ones. Fill out the quote form on this page right now for a free, no-obligation comparison tailored to your unique needs. Let Insurance By Heroes put our commitment and market access to work for you.