Understanding how a deductible fits into a VUL policy is crucial before you commit. And in this article, I’ll break it down based on my own journey—so you can make an informed choice, too.

What Is a Deductible in VUL Insurance?

In most traditional insurance products, a deductible is the amount you have to pay out of pocket before the insurance coverage kicks in. In health insurance, for instance, you might pay the first $1,000 of medical expenses yourself. But in VUL insurance, it’s a bit different.

Some VUL policies use the term deductible in reference to fees or charges that are taken from your premium or investment account before benefits or returns are calculated. These can include:

• Monthly administrative fees
• Cost of insurance (COI) charges
• Policy fees and rider deductions
• Premium allocation charges

In essence, these “deductibles” reduce the amount of money going into your investment sub-accounts or cash value accumulation. And while they may not be labeled “deductibles” in every product, the function is the same: they lower your returns unless managed properly.

How It Affects Real People Like You and Me

When I bought my VUL policy, I wasn’t really aware of how much was being deducted every month from my premium. It wasn’t until my advisor showed me a policy breakdown that I realized I was losing about 15-20% of my premium to various charges during the first few years.

For example, I was paying $5,000 annually. After all the fees, only around $4,000 made it into the investment portion of my policy. That meant slower cash value growth—and potential frustration if I hadn’t been properly informed.

This is why understanding the concept of a deductible (even in this broader sense) is so important before you sign on the dotted line.

Why VUL Policies Have High Initial Deductions

Unlike traditional life insurance, VUL policies are built to last decades. In the early years, the company needs to cover:

• Underwriting and medical exam costs
• Commission for the agent
• Administrative and setup expenses

As a result, your policy will carry heavier deductions in the beginning. This is normal—but it can catch you off guard if you’re not prepared.

Eventually, these deductions level out and more of your premium starts working for you. But it takes time, discipline, and a clear understanding of how the mechanics work.

What to Ask Your Advisor About Deductions

If you’re meeting with a financial advisor or insurance agent, don’t be afraid to ask specific questions about deductions and fees. Some good questions include:

• What portion of my premium goes into investment in the first five years?
• What are the fixed and variable deductions in this policy?
• Is there a breakdown of all monthly charges and fees?
• How do these charges affect my policy’s projected returns?

In my case, having these conversations up front helped me set realistic expectations. I wasn’t shocked when I saw modest growth in the early years. Instead, I knew the long-term goal and stayed committed.

How Deductibles Impact the Cash Value Over Time

Let’s say you invest $100,000 in your VUL over 20 years. If your policy’s deductible-type charges reduce your contributions by 10% each year, that’s a $10,000 reduction in total contributions. That missing growth—especially with compound interest—can significantly affect your long-term cash value.

Now imagine you chose a policy from a company that only deducted 5% instead of 10%. That small difference could result in thousands of dollars in additional value later in life.

This is why understanding the inner workings of policy deductions is not just fine print—it’s smart financial planning.

Different Companies, Different Terms

Important disclosure:The term “deductible” may not appear uniformly across all VUL products. Some insurance companies may use different terms such as “premium charges,” “policy fees,” or “investment load.” The structure and percentage of these deductions also vary significantly from one insurance company to another, from one country to another, and even from one VUL product to another within the same insurer.

Always review the policy illustration, official brochure, and consult a licensed financial advisor in your country before making any commitments.

Should You Worry About Deductibles in VUL?

Not necessarily—but you should be aware. A well-structured VUL policy can still deliver great value despite having upfront charges. It’s about understanding what you’re getting into, and choosing a policy and provider that balance costs with benefits.

In my case, I decided to proceed with a company that had higher initial charges—but better long-term fund performance and a strong reputation. Ten years in, I’m happy with that decision. But I only got here by understanding how those “deductibles” would affect me early on.

Final Thoughts

When exploring if VUL insurance is right for you, don’t skip over the fine details—especially when it comes to deductions. While the term “deductible” may not be front and center, the concept is very real and directly impacts how your money grows inside your policy.

Take the time to compare policies, ask your agent the hard questions, and understand how your premium is being allocated. If you do, you’ll be better positioned to enjoy the dual benefits of life protection and investment growth—without any unpleasant surprises along the way.