One of the most appealing features of Variable Universal Life (VUL) insurance is its flexibility—not just in premiums and investment options, but also in the potential to increase the death benefit over time.
But how exactly does that work? And more importantly, can your beneficiaries really receive more than the original face amount when the time comes?
If you’re currently exploring whether VUL insurance is the right financial tool for your long-term goals, understanding how the death benefit can grow might be the key to unlocking its full potential.
A Real-Life Scenario: Building a Legacy That Grows
Let’s imagine Anna, a 35-year-old graphic designer. She purchased a VUL policy with a $100,000 death benefit and began contributing more than the minimum premiums, allowing the policy’s investment component to grow steadily.
Fast-forward 20 years: her VUL has accumulated significant cash value thanks to a combination of consistent contributions and favorable market conditions. As a result, her death benefit has grown to $150,000—without ever needing to buy additional coverage.
That’s the power of a well-managed VUL policy.
Yes, Your Death Benefit Can Increase—Here’s How
In many VUL insurance policies, the death benefit isn’t a fixed, unchanging number. Depending on your policy structure and how well your investment sub-accounts perform, your death benefit can grow over time.
There are typically two types of death benefit options in a VUL policy:
- Option A – Level Death Benefit: The death benefit stays fixed. It equals the policy’s face amount, and any increase in cash value just reduces the insurer’s risk.
- Option B – Increasing Death Benefit: The death benefit equals the face amount plus the policy’s cash value. As the cash value grows, so does the total amount paid to beneficiaries.
If you want your death benefit to potentially grow, Option B is usually the way to go. However, it often comes with higher costs because the insurance company is on the hook for a larger benefit.
What Drives the Increase?
The most common driver of a growing death benefit is the policy’s investment performance. VUL policies allow you to allocate your premiums to a variety of investment sub-accounts, such as equity funds, bond funds, or balanced funds.
When these investments perform well, your policy’s cash value increases. If you selected the increasing death benefit option, this means your beneficiaries could receive significantly more than your policy’s original face value.
Here’s a quick summary of how your death benefit might increase:
- Good market performance boosts your cash value
- Higher cash value adds to the total death benefit under Option B
- Additional premiums (beyond the required amount) can accelerate growth
But Be Careful: Growth Isn’t Guaranteed
While it’s exciting to think your VUL death benefit might increase, remember that your policy’s investments are tied to market performance. Just as markets can rise, they can also fall.
If your chosen sub-accounts perform poorly, not only will your cash value suffer—but your death benefit may not grow at all. In fact, you may need to pay higher premiums to keep the policy from lapsing.
Disclosure: The specifics of how the death benefit increases—and the risks involved—vary depending on the insurance company, product design, and even the regulations in your country. Always review the terms with your licensed insurance advisor.
Should You Switch from Level to Increasing Death Benefit?
Some VUL policies allow you to switch between Option A (Level) and Option B (Increasing) after the policy has been in force for a certain number of years. This flexibility can be useful as your needs change.
For example, if you start your policy while raising a family and just want to lock in coverage, Option A may make sense. But once your finances are stable and you want to leave behind a larger legacy, you might consider switching to Option B—especially if your cash value has grown significantly.
That said, switching death benefit options may trigger new underwriting or cost increases, so it’s not a decision to make lightly.
Who Should Consider a VUL with an Increasing Death Benefit?
This feature can be especially attractive if you:
- Have a long investment horizon and can tolerate market risk
- Want to maximize the legacy you leave behind
- Plan to pay more than the minimum premium regularly
- Are comfortable managing your policy actively (or with the help of an advisor)
It’s also worth noting that a growing death benefit can help offset inflation. A $100,000 payout today might not have the same buying power 30 years from now. A policy that grows alongside your cash value can help maintain its real-world impact.
Tax Considerations
In most countries, the death benefit from a life insurance policy is paid out income-tax-free to beneficiaries. This generally includes any increase due to cash value growth—though local tax laws vary.
However, if you withdraw or borrow from your policy during your lifetime, there may be tax implications. And if your policy lapses or is surrendered, gains in the policy could be taxed as income.
Again, it’s essential to consult a tax advisor who understands your local regulations.
Final Thought: Your VUL Can Grow with You
One of the most powerful aspects of VUL insurance is its dynamic nature. Unlike traditional policies that offer fixed death benefits and little to no growth potential, VUL gives you a chance to increase the value you leave behind—if you’re willing to engage with the policy and manage it wisely.
If you’re someone who wants both protection and potential, and you’re not afraid of a little market risk, then a VUL with an increasing death benefit might be your ideal match.
Just remember: the more you understand your policy’s moving parts, the more control you have over your financial future—and the more rewarding that future can be.
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