By Robert P. Stone
What sells variable universal life insurance? Lest anyone get upset, this question should be framed properly: “Apart from the selling skills of the agent, what features generally sell VUL?”
For instance, if talking about secondary guarantee universal life insurance, the answer would be obvious: The lifetime guarantee usually sells those contracts (and seldom with much cash surrender value). If discussing variable annuities, the conversation might turn on the contracts guarantees options such as guaranteed minimum withdrawal benefits or guaranteed return of premium riders. For term insurance, low cost is usually the main selling point.
But what is the key feature of VUL? The answer: Cash. Lots of cash!
The prospect of having future access to significant cash value accumulation, available under the tax-advantaged umbrella known as life insurance, is a big driver of VUL.
Shocked? Probably not. Its an obvious answer. Very few other life insurance products can offer the cash value accumulation potential of VUL.
Compared to VAs, which offer similar growth potential, the carefully funded (as in, no modified endowment contract) life insurance contract offers access to values on a tax basis that VAs cant match. The trade-off, of course, is higher contract charges for cost-of-insurance and other policy loads not normally a part of VAs. Even so, the client gets life insurance benefits on a tax-favored basis far beyond what VAs can provide.
Further evidence backing the claim that VUL sales are about cash value accumulation is the relative lack of guarantees in the VUL market, especially as compared to the guarantees available in the VA market. Where VAs have a well-documented menu of guarantees to help protect policyholder principal (at increased cost, of course), few such guarantees exist in the VUL market today.