How finance folk use it
A VUL (Variable Universal Life or Variable Unit-Linked insurance) is a type of life insurance that has a built-in investment component. Because it is permanent insurance, you are covered for as long as you pay the premiums (unlike term life insurance, which will only cover you for a set number of years).
The variable aspect comes from the returns on the investment, which are not fixed. Most of the premiums are invested in assets such as bonds, stocks and money market instruments, and are maintained by a fund manager.
Most VULs allow you to pay more than the regular premium, so your investment becomes bigger. For an additional premium, you can also choose riders for more coverage, including critical illness and total disability premium waiver.
If something happens and you need money, you can withdraw the invested amount partially or in full. The death benefit and investment returns of VULs are also free from estate tax for irrevocable beneficiaries.
Is it good or bad?
Having insurance is always a good thing, especially when you have people who depend on you. VULs can make it easy for you to be insured while also getting started with investing. This way, you can pay a single amount every month and get both.
Some financial experts, however, prefer to follow the BTID (Buy Term, Invest the Difference) strategy. In this, you purchase term insurance and use the rest of your money to get investments of your choice.
The BTID method can be more cost-effective, although the returns are also not guaranteed (just like all types of investments). If you don’t feel confident enough to manage your own investments, you can choose a fund that is run by a professional manager who will take care of all the decisions for you.
What it means for you
A VUL can be a good option for you if you like the idea of paying once per month and getting both life insurance and investments. You should also consider the BTID strategy and see which one fits your needs and budget better.