Understanding the Basics: What Is Permanent Life Insurance?

Permanent life insurance is designed to provide coverage for the entirety of your life, as opposed to term insurance which only covers a specific period. The major types include:

• Whole Life Insurance: Offers fixed premiums, a guaranteed death benefit, and guaranteed cash value accumulation.
• Universal Life Insurance: Provides flexible premiums and adjustable death benefits, but with limited cash value growth tied to a fixed interest rate or indexed account.
• Variable Universal Life Insurance: Combines the flexibility of universal life with investment options similar to mutual funds, allowing for greater cash value growth—but also market risk.

What Makes Variable Universal Life Insurance Unique?

What sets VUL apart from its counterparts is the ability to invest your cash value in a range of subaccounts that resemble mutual funds. While traditional whole or universal policies grow based on conservative fixed interest or index rates, VUL offers potential for higher returns—along with greater risk.

Key Features of Variable Universal Life

• Flexible premium payments
• Adjustable death benefit options (level or increasing)
• Tax-deferred cash value growth
• A menu of investment choices
• Loan and withdrawal access to cash value

This flexibility makes variable universal insurance appealing to people who want a blend of life insurance and a long-term investment strategy tailored to their risk tolerance.

Comparison: VUL vs. Whole Life Insurance

As shown above, while whole life offers security, it lacks the growth potential and flexibility that variable universal insurance can provide. This makes VUL a better fit for financially savvy individuals who are comfortable with a degree of risk.

VUL vs. Indexed Universal Life (IUL)

Another common comparison is between VUL and Indexed Universal Life (IUL). Both offer flexible premiums and death benefit options, but they differ in how the cash value grows. IUL uses a formula based on a market index (like the S&P 500) with a floor and cap, limiting both losses and gains. VUL has no such cap, giving you access to the full upside—and downside—of the market.

If you’re confident in your ability to manage investments or you’re working with an advisor, VUL may provide superior growth opportunities over the long term.

Who Should Consider Variable Universal Life Insurance?

Variable universal insurance is not for everyone. It’s best suited for:

• Individuals looking for lifetime coverage and investment growth
• People comfortable with market risk
• Those with fluctuating income who benefit from flexible premiums
• High earners who want additional tax-deferred growth beyond IRAs and 401(k)s

VUL is often used as a wealth-building tool by entrepreneurs, high-income professionals, and individuals focused on legacy planning.

Costs and Charges to Keep in Mind

Despite its benefits, VUL comes with fees that can eat into returns. These may include:

• Mortality and e

Using Variable Universal Life Insurance as a Wealth Strategy for High-Income Earners

As financial planning grows more complex for high-income individuals, there’s increasing interest in insurance products that do more than just offer a death benefit. One such product is variable universal insurance, a hybrid solution that merges life protection with investment potential. In this article, we explore how high earners can use Variable Universal Life (VUL) insurance as a strategic vehicle for building wealth, managing taxes, and passing on a financial legacy.

What Is Variable Universal Life Insurance?

Variable Universal Life Insurance is a form of permanent life insurance that allows policyholders to allocate a portion of their premium into investment subaccounts. These subaccounts function much like mutual funds, offering exposure to equities, bonds, and other financial instruments. Unlike traditional policies, VUL provides flexibility in premium payments and the ability to adjust the death benefit over time.

Most importantly for wealth builders, the cash value within the policy grows tax-deferred—making variable universal insurance an attractive option for those who have already maxed out other tax-advantaged accounts such as IRAs and 401(k)s.

Why High-Income Earners Should Consider VUL

Traditional retirement and investment accounts come with contribution limits that may be insufficient for high-income professionals, business owners, and executives. VUL policies offer a workaround, enabling additional capital to grow without immediate taxation. Here’s how:

• Unlimited Contributions: While technically limited by IRS guidelines on life insurance qualification, VUL contributions are much more flexible than traditional retirement accounts.
• Tax-Free Policy Loans: Once sufficient cash value has accumulated, policyholders can access funds via loans without triggering a taxable event, as long as the policy remains in force.
• Legacy Planning: The death benefit is typically paid out income-tax-free to beneficiaries, making it a powerful estate planning tool.

Maximizing Policy Performance Through Overfunding

One strategy that wealthy individuals often use is overfunding their VUL policy. This means contributing the maximum allowable premium under IRS guidelines without causing the policy to become a Modified Endowment Contract (MEC). Doing so boosts the policy’s cash value and maximizes investment growth.

With overfunding, the goal shifts from just providing a death benefit to creating a long-term financial asset that can be used for retirement income, business expansion, or even college tuition for children—without the typical tax liabilities.

Investment Choices Inside a VUL Policy

The range of investment subaccounts available within a VUL varies by insurer but generally includes options such as:

• Equity-based mutual fund subaccounts
• Bond or fixed-income options
• Money market funds
• Index-tracking funds (e.g., S&P 500)

The beauty of variable universal insurance lies in the policyholder’s ability to tailor investments to their individual risk tolerance and goals. Unlike fixed or indexed universal life policies, VUL offers direct market exposure—bringing both opportunity and risk.

Comparing VUL to Other Wealth Tools

As seen above, VUL offers a unique combination of features not found in conventional investment accounts, making it particularly attractive for those who’ve outgrown the traditional retirement system.

Important Considerations Before You Invest

While the benefits are compelling, there are also some caveats:

• Fees and Charges: VUL policies come with administrative fees, mortality charges, and fund management expenses that can reduce net returns.
• Market Risk: Your cash value is subject to market fluctuations, and poor investment choices could result in loss of value.
• Policy Lapse: If your policy’s cash value drops too low, you risk losing coverage unless additional premiums are paid.
• Complexity: These policies are not simple. You’ll need to review your plan annually and make adjustments as needed.

Working With an Advisor

Given the complexity and long-term nature of VUL, working with a knowledgeable financial advisor or insurance planner is essential. They can help structure your policy to maximize investment performance, avoid taxation issues, and align with your broader wealth strategy.

For high-income earners looking to optimize tax efficiency, access market-driven growth, and secure financial protection, Variable Universal Life Insurance presents a robust solution. Though not without its challenges, the unique blend of flexibility, investment potential, and legacy benefits make VUL an integral component of an advanced wealth-building strategy.

If you’re ready to go beyond basic retirement accounts and take control of your financial future, a well-structured variable universal insurance policy may be the smart next step.