Variable universal life (VUL) policies, whose sales took a nosedive after the 2007-09 market crash, have had a resurgence. In 2018 sales jumped, with annualized premiums from new VUL sales increasing by 14% over the prior year. (1)

VUL policies provide the policy owner with the opportunity to invest in the equity market. The cash value in the policy is held in separate accounts and can include more than 100 investment options, featuring many well-known fund families and investment managers. The separate accounts operate much like mutual funds in an insurance wrapper and can consist of US and international value, balance, equity-income, growth and aggressive growth stock fund options, as well as bond and other asset classes.

The ability to develop a diversified asset allocation that can be adjusted allows the TOLI trustee to manage the portfolio within the policy over the life of the insured. While this can be considered an advantage, it comes with responsibilities and challenges other policies do not have.

  • Unlike any other life insurance policy, the VUL policy places the investment choices (and risk) squarely with the policy owner: you, if you are a trustee. As trustee of the ILIT and policy, it will be your decisions, not the carriers, that will determine the rate of return generated and growth of the policy cash value.
  • Also, unlike any other life insurance policy, a VUL policy comes with the risk that the cash value in the policy can have a negative return. Whole life dividends and current assumption universal life crediting rates may not have held up over time as projected in the sales illustration, but they never turned negative. Equity index universal life, though invested in an index tied to equities, has a floor so that even in down years, there is no negative return (though costs within the policy will cause the cash value to drop). VUL policies can actually lose money year to year, and since the monthly expense deductions are taken from the policy each month, when the separate account values drop, more shares need to be redeemed to pay the expenses – a double-edged sword in bad markets.

So, what should a TOLI trustee do? While we are not investment managers and do not give investment advice, we have found that successful trustees follow these steps.

  1. As with any other policy that you take in, create a document for the trust file that will outline the expectations and responsibilities around the policy. It should include the premium expectations at the rate of return assumed on the “as sold” illustration and clearly point out that premiums will increase if that return is not reached. Review the outcome at a lower return and include that in the file. The document should be signed by the grantor and include any other caveats about the policy.
  2. You, and not the sales agent, should determine the rate of return expectation for the policy based on your internal investment criteria. The higher the rate of return assumed in the as-sold illustration, the lower the premium need (assuming the policy has no secondary death benefit guarantee). It would be wise to consider a rate of return that is a bit lower and easier to achieve than one that will be hard to attain.
  3. Do not attempt to time the market, but develop your asset allocation assuming a long-term investment strategy. The investment strategy should be prepared for the portfolio of policies you hold, not for a specific policy, though adjustments can be made for specific policies.
  4. Take into consideration the age of the insured, with an allocation that grows more conservative over time.
  5. If possible, fund the “stable account” option with enough cash so the monthly deductions can be taken from that account. That way, you will not be selling low to pay policy expenses when the market drops. Review and replenish the account yearly.
  6. Each year, track the policy cash value and projected outcome to make sure the policy is on track relative to expectations at policy issue. Make adjustments to gifting amount if needed. Make sure that the grantor is aware annually of the policy condition.

While the VUL policy can potentially lower grantor gifting requirements and policy carrying costs, because of its higher rate of return possibilities, it does have the potential to incur significant losses, and because of the investment responsibilities, it takes more time to manage. Some trustees charge a higher fee for variable policies because of this.

Managing life insurance is never easy, but managing VUL will be a bit easier if you follow the guidelines mentioned above.


  1. Variable Universal Life Won Life Insurance in 2018, Allison Bell, ThinkAdvisor, March 14, 2019