Variable Universal Life (VUL)

How it works

• Premiums can be paid in cash or, where the insurer allows, by transferring acceptable financial assets.
• Assets are held by a designated custodian and managed according to agreed investment rules.
• Insurance and policy charges are deducted regularly from the account value, and a certain proportion must be kept in cash.
• The policy may have multiple owners, or the owner may be changed where conditions allow, for cross-generational arrangements.

Key concepts

Concept	Meaning
Account value	The total market value of the assets held in the policy, which fluctuates with the market.
Acceptable assets	The asset classes and maximum proportions the insurer allows in the policy.
Minimum account value	If the account value falls below the required level, more funds must be added or the policy may lapse.
Death benefit payment	Paid in cash, or in a combination of cash and assets, according to the policy terms.

Usually suitable for

• Families with larger assets and an existing portfolio who want to combine it with legacy arrangements
• People who value control over investments and can bear fluctuations

Usually not suitable for

• Money needed in the short term
• People who want guaranteed returns
• People who cannot accept fluctuations in asset value
• People without clear legacy beneficiaries

Risks to note

• There is no floor, and the account value may fall significantly.
• Asset transfers, custody and trading may incur fees.
• Surrender charges apply in the first several years.
• Tax implications depend on the individual and where the assets are; please consult a professional tax adviser.

Questions to ask

• Which assets can be transferred in, and what are the limits?
• What are the fees, and who is the custodian?
• How far can the account value fall before more funds are needed?
• How can the policy owner be changed?