You’ve finally started earning more, paying off debts, and thinking about the future-maybe even building wealth. Someone recommends VUL insurance (Variable Universal Life insurance) as a way to hit two birds with one stone: financial protection for your loved ones and an investment vehicle for your future.
It sounds like a dream plan. And it can be-if you know how to keep it from lapsing.
But what does a lapse in VUL insurance mean? Why does it happen? And how can you avoid the emotional and financial frustration that often follows? If you’re exploring whether VUL insurance is right for you, this article is your personal guide.
What Is VUL Insurance, Really?
Let’s break it down simply.
VUL insurance is a type of permanent life insurance. It comes with two main features:
- A death benefit, like any traditional life insurance, and
- A cash value component, which is invested in sub-accounts similar to mutual funds.
The idea is appealing: you can grow wealth over time while maintaining life protection.
But here’s the catch-VUL policies are active as long as you keep paying the premiums and there’s enough cash value to sustain the policy charges. If you don’t? The policy could lapse.
Understanding a Policy Lapse: Not Just a Missed Payment
When people hear “lapse,” they often think it’s just like missing a bill payment. But in VUL insurance, it’s more complex-and more damaging.
A policy lapse means your VUL insurance is no longer in force. That means:
- No more life insurance coverage.
- Loss of accumulated cash value.
- Possible surrender charges and tax implications.
And the worst part? It might happen without you fully realizing it-especially if your cash value quietly depletes due to high insurance charges or market downturns.
Why Do VUL Policies Lapse? The Real-Life Reasons
You might be surprised how easily a policy can lapse. Here are some relatable reasons:
1. Changing Life Priorities
You bought your VUL policy at 27, excited about building wealth. But by 32, you’re paying a mortgage, raising a toddler, and your budget is tighter than you expected. You reduce your premiums-or skip them-thinking you’ll catch up later. Meanwhile, the policy quietly drains your cash value to cover charges. Eventually, it lapses.
2. Market Volatility
You trusted the investment side of your VUL to grow your policy. But what if the market takes a hit? Your policy’s cash value shrinks, and the internal charges keep increasing as you age. If the investments underperform for too long, your policy might not have enough to stay active-even if you’re still making minimal payments.
3. Lack of Monitoring
Out of sight, out of mind. Life gets busy. You forget to check your VUL’s performance, miss annual statements, and don’t realize the red flags until it’s too late. The lapse notice arrives in your inbox-or worse, after your policy has already terminated.
The Emotional Toll of a Lapsed Policy
Many people think of insurance as a “set-it-and-forget-it” product. But a VUL policy requires attention. When it lapses, it’s more than just a financial hit-it can feel like a broken promise to your family and your future self.
You might experience:
- Regret over lost investments and years of premium payments.
- Frustration at not being warned enough.
- Stress from starting over, especially if you now have health conditions that make new coverage expensive-or impossible.
How to Prevent a VUL Lapse: Practical Tips for Everyday Life
The good news? A lapse isn’t inevitable. Here’s how you can protect your policy (and your peace of mind):
1. Start with Realistic Premiums
Don’t stretch your budget too thin in the beginning. Choose a sustainable premium amount that supports the policy’s insurance charges and contributes to the investment fund. If you can’t pay enough to grow the cash value, the policy might not last.
2. Schedule Annual Reviews
Meet with your financial advisor or insurance agent at least once a year. Review your:
- Premium payments
- Cash value performance
- Death benefit level
- Cost of insurance (which increases over time)
Even a quick review can help catch issues before they snowball into a lapse.
3. Monitor Your Policy’s Cash Value
This is your policy’s fuel tank. If it runs low, the policy could lapse-even if you’re still paying premiums. Ask your insurer how to set up alerts or online access to check balances.
4. Adjust As You Go
Got a salary bump? Consider increasing your premium or making a one-time payment to boost your cash value. On the flip side, if life gets tight, reduce your investment allocations rather than skipping payments entirely.
5. Use Automatic Premium Payment
Set your policy on auto-pay. One missed payment might not cause an immediate lapse, but multiple missed payments will. Auto-pay helps reduce the risk of forgetfulness-one of the most preventable causes of lapse.
What to Do If Your Policy Is at Risk of Lapsing
If you receive a lapse notice, don’t panic-but don’t delay either. Contact your insurer immediately. You may have a grace period or reinstatement options, but acting fast is critical.
Here’s what to ask:
- Can I make a lump-sum payment to restore the policy?
- Are there cheaper premium options I can switch to?
- Can I reduce the death benefit to lower the policy charges?
Some policies allow you to “rescue” your plan if action is taken quickly.
Is VUL Insurance Still Worth It?
That depends. If you’re someone who:
- Wants lifelong coverage,
- Likes the idea of investing for the long term,
- And is willing to monitor your policy regularly,
Then yes, VUL insurance can be a powerful tool.
But if you’re likely to forget about it, underestimate your budget, or hope it’ll take care of itself-then you might be better off with a more straightforward product like term insurance and separate investments.
Keep the Promise Alive
VUL insurance is a long-term commitment, not a plug-and-play product. The benefits are real-but so are the risks. A lapse can undo years of effort and leave you unprotected just when you need coverage the most.
If you’re considering VUL, go in with your eyes wide open. Stay involved. Ask questions. Monitor performance. And remember-protecting your future starts with understanding how to keep your policy from falling apart.
Because in the world of VUL, it’s not just about buying insurance-it’s about keeping the promise alive.