Tax considerations often shape how policyholders use VUL life insurance. Typically, the cash value grows tax-deferred. You won’t be taxed on gains as long as they remain inside the policy. Additionally, beneficiaries often receive the death benefit tax-free. However, there are important nuances:

• Policy Loans: Borrowing from your policy isn’t usually taxed as long as the policy remains in force. But if the policy lapses or is surrendered with an outstanding loan that exceeds your premiums paid, you could face tax consequences.
• Withdrawals and Gains: Partial withdrawals up to your cost basis (the amount you’ve paid in) are generally not taxed, but amounts above the cost basis might be considered taxable gains in many jurisdictions.
• Modified Endowment Contract (MEC): If you overfund the policy beyond specific IRS or local regulatory limits, it can become a MEC. MECs lose some of the traditional tax advantages of life insurance, so you must be cautious about large, lump-sum premium payments.

Given the complexity of tax laws, consulting with a tax or financial professional can ensure you structure your policy in a way that meets your objectives without incurring unintended liabilities.