General Uses of Variable Universal Life
These are the features typically marketed by insurance companies, however the VUL in most cases will limit the insured to being able to take advantage of only one of these features listed not all. Each of these features can be achieved through other means.
- Financial protection - as with all life insurance programs, VULs can be used to protect a family in the case of a premature death.
- Tax advantages - because of its tax-deferred feature, the VUL may offer an attractive tax advantage, especially to those in higher tax brackets. To attain them, the policy must be highly funded (though still non-MEC), for the tax advantages to offset the cost of insurance. These tax advantages can be used for either...
- Education planning - the cash value of a VUL can be used to help fund children's education, as long as the policy is started very early. Also, putting money into a VUL can be used to help children qualify for federal financial aid, since the federal government does not consider the cash value when calculating EFC (Expected Family Contribution).
- Retirement planning - because of its tax-free policy loan feature, the VUL can also be used as tax-advantaged income source in retirement, assuming retirement is not in the near future and the policy is not a modified endowment contract. Again, the policy must be properly funded for this strategy to work.
- Estate planning - those with a large estate (A filing is required for estates with combined gross assets and prior taxable gifts exceeding $3,500,000 effective for decedents dying on or after January 1, 2009) can sometimes use a VUL as part of their estate planning strategy to reduce or avoid estate taxes by setting up a life insurance trust sometimes known as an ILIT.
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