The premiums can vary from nothing in a given month up to maximums defined by the Internal Revenue Code for life insurance.
The combination over the years of no endowment age, continually increasing death benefit, and if a high rate of return is earned in the separate accounts of a VUL policy; this could result in higher value to the owner or beneficiary than that of a whole life policy with the same amounts of money paid in as premiums.
Variable universal life insurance receives special tax advantages in the United States Internal Revenue Code.
The tax-free investment returns could be considered to be used to pay for the costs of insurance inside the policy.
Therefore, the greater the cash value accumulation, the lesser the net amount at risk, and the less insurance that is purchased.
Another use of Variable Universal Life Insurance is among relatively wealthy persons who give money yearly to their children to put into VUL policies under the gift tax exemption.
To avoid this, many insurers offer guaranteed death benefits up to a certain age as long as a given minimum premium is paid.
VUL policies have a great deal of flexibility in choosing how much premiums to pay for a given death benefit.
Internal Revenue Code section 7702 sets limits for how much cash value can be allowed and how much premium can be paid (both in a given year, and over certain periods of time) for a given death benefit.
The most efficient policy in terms of cash value growth would have the maximum premium paid for the minimum death benefit.
In order to curb this practice, but still encourage life insurance purchase, the IRS developed guidelines regarding allowed premiums for a given death benefit.
The maximum premiums are set by the IRS guidelines such that the premiums paid within a seven-year period after a qualifying event (such as purchase or death benefit increase), grown at a 6% rate, and using the maximum guaranteed costs of insurance in the policy contract, would endow the policy at age 100 (i.e. the cash value would equal the death benefit).
These newer policies often offer 50 or more separate accounts covering the entire spectrum of asset classes and management styles.
In order to get a 9% rate of return in an ordinary taxable account, in a 34% tax bracket, one must earn 13.64%.
An alternative for this in the 34% tax bracket would be to consider using Variable Annuities which does not limit the contributions and withdraw from it without annuitizing the contract.