Is a Variable Universal Life Insurance Policy a Good Investment?

A variable universal life insurance policy provides you with a cash value, as whole life insurance does, but at the same time, it provides more control over what happens to your money. With this type of policy, you can choose the individual types of investments that your premium money will go into. This gives you the opportunity to increase returns and grow a large cash value. Here are a few things to consider about whether this type of life insurance is a good investment.

How It Works

With variable universal life insurance, part of your premium goes into the death benefit of the policy. Another portion of your money goes into investments. You can choose which sub-accounts to put your money into. These accounts will be similar to mutual funds with some of them being based on bond investing and some of them being based on stock investing. You have control over where your money is going, which means that you can sometimes increase the returns on your policy overall. 


One of the drawbacks of using this type of insurance policy as an investment is that you have to pay fees. Part of your premium will go towards paying for the administration of the insurance company. This cuts into your investment returns significantly. Since the money that goes towards investing is usually going towards mutual funds, the funds also have fees that you will have to pay. This means that you will have to pay fees to the insurance company and indirectly pay fees to the investment managers of the investments. 

Purchase Term Life Insurance and Invest the Difference

Another common strategy that many people use instead of variable life insurance is to purchase a term life insurance policy and invest the difference between the term price and the price of what you would pay with a variable or whole life policy. With this strategy, you can generally gain superior returns on your investment. You will essentially be putting more money towards investing because you will not have as many fees to pay. You can also put your money into a wider array of investments. With variable universal life, you have a limited number of investments to choose from. They generally give you access to only a few mutual funds, and you have to choose between them. When you invest on your own, you can invest in anything from individual stocks and bonds to mutual funds and commodities. 

Choosing a Style

If you have the discipline to actually invest the difference between the variable and term policies, using the term method will generally be a better option. With better returns and more choices, this method is the best from an investment standpoint. However, if you do not have the discipline that it takes to do this on a regular basis, you would be better off to go with a variable universal life insurance policy.