Variable Universal Life Insurance is a type of permanent life insurance simular to Universal Life Insurance. The primary difference between the two are the way in which the cash values of the policies are invested. In universal life policies, the insurer sets the interest rate on the cash value of the policy or pegges it to a financial index. Variable universal life policies allow the cash values to be investeded in a variety of separate accounts that act like mutual funds and can invest in stocks or bonds.
A new type of variable universal life policies are Equity Indexed Universal Life contracts which invest cash values in Index options to follow a set index, such as the S&P 500. Each year the fund is reset at the end of the year with the year 1’s ending point being year 2’s starting point.
Variable Universal Life has the same tax advantages as Universal Life which the potential for better returns, but increased risks. I wouldn’t recommend investing in a variable universal life policy without the advice of a financial planner.
