Variable Universal Life Insurance for Expats: Definition, Costs, Pros & Cons

In this guide, we’ll define this type of life insurance and highlight its benefits to help you determine whether it aligns with your financial, cross-border, and estate-planning goals.

What Is Variable Universal Life Insurance?

Variable Universal Life (VUL) insurance is a type of permanent, market-linked life policy that combines flexible premiums, a customisable death benefit, and a cash value component that can be allocated to investment subaccounts—options structured similarly to mutual funds or professionally managed portfolios.

VUL insurance offers the potential for higher long-term investment returns, but also carries greater market risk than other forms of life insurance. Because subaccount values fluctuate with market performance, declines in equity or bond prices may reduce the policy’s cash value, and capital loss is possible.

Like other permanent life insurance policies, a VUL provides lifelong coverage as long as the required premiums and internal charges are met.

How Does Variable Universal Life Insurance Work?

Once you take out a variable universal life policy, you begin paying flexible premiums according to the agreement. The specific amount depends on the desired level of coverage and underwriting factors such as age, health, lifestyle, and residency status. Your premiums are allocated to two main components:

1. Cost of insurance (COI): This represents the mortality charge, covering the pure cost of life insurance and the insurer’s risk of paying the death benefit. It may also include a mortality and expense risk charge and other administrative fees.
2. Cash value: The portion of the premium remaining after COI and charges are deducted is credited to the policy’s cash value account, which can be invested in a range of subaccounts to support long-term growth.

VUL Subaccounts

When establishing a VUL policy, you (the policyholder) can select how your cash value is allocated among variable subaccounts, which are structured similarly to mutual funds or segregated portfolios. Each subaccount may invest in different asset classes—such as equities, bonds, or money-market instruments—providing exposure to global financial markets and potential for diversification.

The cash value performance is directly linked to the results of the chosen subaccounts. Strong market performance can produce significant accumulation over time, while poor market returns can reduce your account value and may require additional premium funding to maintain coverage.

For clients seeking stability, some VULs also include a fixed or general account option with a declared interest rate backed by the insurer’s claims-paying ability. However, this option typically lacks the higher growth potential of variable subaccounts.

Once your policy is active, you can review and adjust your allocations within the limits of your contract. Many policies allow several free transfers per policy year, after which transaction fees may apply.

Market Exposure and Risk Dynamics of VUL

A VUL policy gives policyholders direct exposure to global financial markets through professionally managed subaccounts that operate much like mutual funds.

This structure provides access to diversified equity, bond, and multi-asset portfolios within an insurance-based investment wrapper, combining protection and investment flexibility.

Unlike indexed or fixed policies, VUL returns are fully market-linked and uncapped—they rise and fall directly with investment performance. This means policyholders capture full market beta, but also face sequence-of-returns risk, where early negative performance can erode cash value and require higher future premium contributions to maintain adequate coverage.

Ongoing policy charges, including mortality & expense risk fees, fund management costs, and administrative charges, can further reduce net investment performance over time.

Because the cost of insurance typically increases with age, sustained under-performance in the early years can accelerate cash-value depletion and potentially lead to policy lapse if not adequately funded.

Investors with a long-term horizon can help mitigate these risks by overfunding the policy (within regulatory and product limits) or maintaining liquidity in other assets to supplement premium payments during adverse market conditions.

What Is the Cost of Variable Universal Life Insurance?

The cost of insurance for a Variable Universal Life policy varies depending on several underwriting and policy-specific factors, including:

• The desired amount of coverage.
• Age, gender, and overall health of the insured.
• Tobacco use, medical history, and lifestyle.
• Occupation and country of residence.

In addition to these factors, the total cost of your policy depends on several other ongoing charges and expenses that should be reviewed carefully before signing the contract. The exact amounts vary by insurer, jurisdiction, and investment option, but typical cost components include:

An Example of Variable Universal Life Insurance Premiums

Premium levels vary widely depending on carrier, jurisdiction, age, health, and funding pattern.

The following figures are used as an example for average monthly VUL premiums for $250,000 of coverage for healthy, non-smoking men and women:

*Actual premiums are determined by the insurer based on underwriting, policy design, and funding structure.

What Are the Benefits of Variable Universal Life Insurance?

Exploring the benefits of a variable universal life insurance policy can help determine whether this structure aligns with your long-term priorities and wealth-planning objectives. The key advantages of VUL include:

1. Flexible premium design
2. Market-linked growth potential
3. Adjustable and generally tax-efficient death benefit
4. Access to policy loans and withdrawals

Flexible Premiums

If your financial circumstances change, you can adjust the amount and frequency of premium payments to maintain coverage without overcommitting capital.

Likewise, if your income or liquidity increases, you can raise contributions to accelerate cash-value accumulation or adjust your death benefit. The premium flexibility rules are defined by each insurer and should be clearly outlined in the contract.

Changing premium amounts affects the pace of cash-value growth. If you pause or reduce payments, the policy’s cash value and, in some cases, the death benefit may decrease or require additional funding to remain in force.

High Growth Potential

When funding a VUL policy, you can allocate the cash value among multiple investment subaccounts, providing diversification across global markets. This offers the potential for higher long-term returns, although performance is not guaranteed and investment losses are possible.

Cash-value accumulation is typically tax-deferred, no tax is payable on unrealised gains while funds remain within the policy. This can:

1. Enhance compounding by allowing investment growth without interim taxation; and
2. Defer tax liability until funds are withdrawn or the policy is surrendered.

In addition, VULs do not impose a cap on returns, unlike indexed universal life insurance (IUL) contracts, which means policyholders participate fully in market upside while also bearing full downside risk.

Adjustable and Tax-Free Death Benefit

Holders of a VUL policy can choose from three death benefit options:

• Option A (Level): A fixed death benefit that remains constant; beneficiaries receive the stated death benefit only.
• Option B (Increasing): The death benefit equals the face amount plus accumulated cash value.
• Option C (Face + Premiums Paid): Available with some insurers, combining the base benefit with premiums contributed.

Depending on product design and underwriting rules, you may be able to increase or decrease the death benefit over time. For example, to align with changing family or estate objectives.

The Variable universal life insurance death benefit is generally income-tax-free to beneficiaries under most jurisdictions (e.g., under IRC §101(a) in the U.S.), but may still be subject to estate or inheritance tax depending on policy ownership and local law.

Flexible Loans and Withdrawals

Like other universal life products, VUL policies permit loans or partial withdrawals from the accumulated cash value. These are typically tax-free up to the amount of premiums paid, provided the policy remains in force and is not a modified endowment contract (MEC).

However, excessive borrowing or withdrawals can lead to:

• Policy lapse: if cash value is depleted and charges exceed remaining value.
• Tax charges: if the policy terminates with outstanding loans or becomes a MEC;
• Interest expense: on any policy loans; and
• Reduced death benefit: depending on the insurer’s terms and repayment schedule.

Potential Drawbacks of Variable Universal Life Insurance

Potential drawbacks of variable universal life insurance include:

1. Limited investments: The investment options available within most VUL policies are restricted to insurer-approved subaccounts, which may not offer the same breadth of asset classes or fund managers accessible through open-architecture investment portfolios.
2. No guaranteed cash-value return: VUL policies do not include a guaranteed minimum interest rate, leaving policyholders fully exposed to market volatility. Poor investment performance can erode cash value and, if underfunded, may ultimately cause the policy to lapse.
3. Complexity: VUL contracts combine life insurance, investment management, and tax treatment rules. This structure is sophisticated and requires active oversight, making it more suitable for financially experienced investors or those with access to professional advisory support.

Understanding these potential drawbacks before committing capital is crucial for managing expectations and long-term performance.

Professional financial advice from a cross-border specialist, like Titan Wealth International, can help assess whether a VUL policy aligns with your broader wealth and estate-planning strategy.

Who Should Consider Taking Out a Variable Universal Life Insurance Policy?

Variable universal life insurance is not a one-size-fits-all product. It’s best suited to sophisticated investors who understand market volatility and can sustain a long-term funding commitment.

The policy’s value lies in its combination of lifelong protection, flexible premium design, and market-linked growth potential, all features that align with the needs of globally mobile individuals managing complex, cross-border wealth and estate objectives.

VUL policies are suitable for:

• High-net-worth individuals with a high risk tolerance or considerable investment experience.
• Globally mobile professionals and expats seeking a long-term wealth-accumulation vehicle. Because the performance of a VUL policy reflects market fluctuations daily, slower growth should be expected in the early years.
• Those who have maxed out their other retirement or pension options and want an additional, tax-advantaged savings structure that allows them to accumulate wealth and leave an inheritance efficiently.

Suitability for High-net-worth individuals

VUL insurance is most appropriate for high-net-worth (HNW) and ultra-high-net-worth (UHNW) investors who:

• Have long investment horizons (typically 10 years or more) and a tolerance for market volatility.
• Possess other guaranteed or liquid assets, for example, fixed income, property, or trust structures to offset market risk.
• Seek tax-efficient accumulation and succession planning in jurisdictions where such treatment applies (noting that rules differ by country).
• Value legacy and estate-planning flexibility, such as funding an irrevocable life Insurance trust (ILIT), offshore trust, or UK discretionary trust structure.

It is less suitable where capital preservation, low cost, or short-term liquidity are priorities. The policy’s investment component behaves like a diversified market portfolio subject to investment risk, while the insurance portion provides lifelong coverage at a cost that typically rises with age.

Cross-Border Tax and Regulatory Considerations For VUL Insurance

While the structural features of a variable universal life policy are broadly consistent worldwide, the tax treatment, reporting obligations, and regulatory oversight vary significantly between jurisdictions.

For globally mobile or expatriate investors, these differences can materially affect policy performance, liquidity, and compliance.

Understanding the rules that apply in your country of residence—and ensuring the policy is issued and administered in the correct jurisdiction—is essential before committing substantial capital.

US Expats: Resident and Non-Resident

For US expats, VUL insurance can combine lifelong protection with market-based growth and potential tax deferral.

However, the US Internal Revenue Code (IRC) applies to American citizens and tax residents on their worldwide income, regardless of residence. Proper structuring is crucial to preserve the tax advantages of a compliant VUL policy.

• Tax treatment: The policy’s cash value growth (inside build-up) is generally income-tax deferred if the contract qualifies as life insurance. Withdrawals from a non–Modified Endowment Contract are treated as first-in, first-out—return of premium basis first—while loans are not taxable provided the policy remains in force. If the policy lapses or is classified as a MEC, loans and withdrawals are taxable as income, and withdrawals before age 59½ may incur an additional 10% tax under.
• Investor control and diversification: To maintain tax deferral, the insurer—not the policyholder—must control the investments within the separate account. The policy’s subaccounts must also meet the diversification requirements. Excess personal control or concentration can cause the policy to lose its tax-advantaged status.
• Estate planning: Death benefits are generally income-tax-free to beneficiaries, but they are included in the insured’s taxable estate if the insured retains ownership or incidents of ownership. Establishing an Irrevocable Life Insurance Trust can remove the policy from the estate and preserve liquidity for heirs.
• Residency and expatriation: US citizens and green-card holders remain subject to US income and estate tax even when living abroad. Individuals who renounce citizenship or long-term residency may be subject to exit tax provisions, which can affect policy gains and ownership transfers. Policy restructuring should occur before expatriation if possible.
• Regulatory disclosure: VUL policies are treated as securities and must be offered by prospectus through a FINRA-registered representative of a broker-dealer. The prospectus discloses investment objectives, risks, fees, and charges. Cross-border advice must comply with both SEC and local jurisdiction rules governing insurance and securities sales.

British Expats: Resident and Non-Resident

For British expats, Variable Universal Life insurance can serve as a flexible, tax-efficient structure for long-term wealth accumulation and legacy planning.

However, UK tax rules can still apply to offshore life policies, depending on residence and domicile status. Understanding these rules is essential before purchasing or funding a VUL policy.

• Tax treatment: Offshore VUL policies are subject to the UK chargeable event regime if the holder is UK tax-resident or later returns to the UK. Up to 5% a year of cumulative premiums may be withdrawn without immediate tax; gains on surrender, assignment, maturity or death are taxed as income, with possible top-slicing relief. Non-residents are generally outside UK income tax unless UK-situs assets are involved or they regain UK residence.
• Personal Portfolio Bond (PPB) rules: Policies giving the holder control or influence over underlying assets can be classed as PPBs, creating an annual deemed gain taxed as income even without withdrawals. Restricting investments to insurer-approved collective funds usually avoids this.
• Estate planning: Life policy proceeds normally form part of the UK estate for Inheritance Tax (IHT) if owned personally. Writing the policy into a trust can exclude proceeds from IHT, though transfers may be PETs or CLTs and offshore trustees may need to register under the Trust Registration Service (TRS).
• Residence and domicile: UK-domiciled or deemed-domiciled expats (15/20-year rule) remain subject to UK IHT on worldwide assets. Policy gains may be taxed if residence resumes before surrender.
• Regulatory disclosure: Any VUL policy marketed to UK residents or returning expats must be advised by an FCA-authorised firm and accompanied by a PRIIPs Key Information Document (KID) detailing risks, charges and performance scenarios.

Australian Expats: Resident and Non-Resident

For Australian expats, Variable Universal Life insurance can provide long-term investment flexibility and estate-planning efficiency.

However, Australian tax rules distinguish sharply between superannuation-linked policies and ordinary investment or protection policies, and outcomes differ depending on residency status and policy type. Understanding these distinctions is essential before purchasing or funding a VUL policy.

• Tax treatment: Life insurance proceeds paid directly to individual beneficiaries are generally tax-free and exempt from capital gains tax. For investment-style life policies (often called investment bonds), the life company pays tax at 30% on earnings. Withdrawals made within 10 years may be assessable, but after 10 years—provided the 125% contribution rule has not been breached—withdrawals are typically tax-free to the policyholder. Australian residents are taxed on worldwide income, while non-residents are taxed only on Australian-sourced gains.
• Superannuation interaction: If the policy is held within a superannuation fund, death benefits are taxed according to the recipient’s dependency status. Dependants (as defined under tax law) can usually receive benefits tax-free, while non-dependants pay tax on the taxable component at rates set by the ATO. Non-super retail life policies follow the rules above.
• Estate planning: Australia has no inheritance or estate tax, but CGT and superannuation death-benefit taxes can apply on subsequent disposals or payments. Proper ownership and beneficiary nomination ensure proceeds reach the intended recipients efficiently.
• Residency status: Australian tax residency is determined by statutory and common-law tests. Residents are taxed on worldwide income, including foreign policy gains; non-residents are taxed only on Australian-source income. Returning expats who regain residency should review policy timing and potential tax exposure before re-entry.
• Regulatory disclosure: Life-insurance investment products must be issued or advised through an entity holding an Australian Financial Services Licence and accompanied by a Product Disclosure Statement. Providers must also comply with Design and Distribution Obligations and the anti-hawking rules restricting unsolicited offers. Cross-border promotions to Australian residents require appropriate licensing or exemption.

How Does Variable Universal Life Insurance Compare to Other Types of Life Insurance?

Below, you’ll find a brief comparison of variable universal life insurance against other major types of life insurance commonly used in private wealth and estate planning.

Variable Universal Life Insurance vs. Variable Life Insurance

Both VUL and variable life insurance (VLI) are permanent life insurance options that combine a death benefit with a cash value invested in subaccounts. The key difference lies in flexibility: with VUL, policyholders can adjust both premium levels and death-benefit amounts, whereas variable life typically requires fixed premiums.

To offset this limitation, some variable life contracts include a minimum guaranteed death benefit, which remains level regardless of investment performance—provided required premiums are paid.

Variable Universal Life Insurance vs. Universal Life Insurance

VUL and traditional universal life insurance (UL) both feature adjustable premiums and cash-value accumulation. The primary distinction is how the cash value grows.

• In a VUL, growth depends on the performance of underlying market investments.
• In a traditional UL, growth is based on interest rates credited by the insurer, often subject to a minimum guaranteed rate.

Traditional UL therefore carries lower investment risk, but also limited upside potential. By contrast, a VUL allows investors to select and diversify among market-linked subaccounts—an advantage for those seeking more active control and potential long-term growth.

Variable Universal Life Insurance vs. Whole Life Insurance

Like VUL, whole life insurance includes a cash value that can be accessed through loans or withdrawals. However, whole life insurance offers fixed premiums, a guaranteed death benefit, and a stable, declared crediting rate, making it one of the most predictable forms of permanent coverage.

While whole life insurance policies are lower risk, their returns tend to be conservative, reflecting the insurer’s general account performance. For investors comfortable with market exposure and seeking greater long-term growth, a VUL structure may offer more flexibility and upside potential, albeit with higher volatility.

Variable Universal Life Insurance vs. Term Life Insurance

Term life insurance provides pure protection for a defined period (e.g. 10, 20, or 30 years). It pays a death benefit if the insured dies during the term but builds no cash value.

Term life policies typically have fixed, lower premiums, reflecting their limited features. Once the term expires, coverage ceases unless renewed or converted.

By contrast, VUL policies combine lifelong coverage with investment-linked cash value growth, appealing to clients focused on long-term wealth transfer rather than temporary protection.