Variable Universal Life Insurance - VUL

Cheaper life insurance plans, called "term life insurance" plans, are just life insurance. There’s the person who pays the monthly, the designated beneficiary who would get the death payout, and the death payout amount. They’re called "term" because they expire after a certain amount of time, say, 15 or 30 years, unless you renew it at that time. Pretty straightforward.

Variable universal life insurance, or VUL, is a whole other can of worms.

First, it’s permanent life insurance: life insurance policies with no expiration date. Assuming, of course, you’re good for the money. Still gotta make those premium payments. In addition to the life insurance part of VULs, the "universal" part has a savings and investment component embedded into the policy. It’s kind of like a mutual fund, and the gains are immune to taxes while the policy is active.

It’s "variable" because the savings and investment part is made up of separately managed subaccounts, giving you options for increasing your investment. Or, you know, decreasing it. It all depends on how well or poorly those sub-accounts have been invested. Unlike the non-variable variety of permanent life insurance, it comes with greater risk for greater potential reward. That means the cash part of the insurance plan isn’t guaranteed...it depends on how your investments are doing.

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