Family Office Definition: Variable Universal Life Insurance Policy

Variable Universal Life Insurance Policy definition:  A variable universal life insurance policy pays beneficiaries an adjustable amount when the owner dies. The policy provides coverage for the owner’s entire life (also known as permanent coverage) and does not need to be renewed. Similar to a tax-deferred investment, the policy’s value increases over time, and the earnings are only taxed when distributions are made. Variable policies are similar to whole life policies, with the exception that death benefits and investment values are adjustable depending on investment performance. The policy owner chooses among equities, bonds, mutual funds, and money markets for the investment component (rather than interest-bearing cash with traditional whole life). A variable universal policy gives maximum flexibility to change premiums, death benefits, and investment options depending on the owner’s insurance needs. Beneficiaries are not taxed on their proceeds from a death benefit. However, life insurance policies may be included in the taxable estate depending on how they are structured.  The earnings from a variable life policy can be used to pay premiums but cannot be withdrawn during the policy owner’s lifetime.

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