When your clients are facing one of the more turbulent markets in recent memory, should you be recommending variable universal life insurance to your clients? For that matter, should you be recommending any variable life policy?

Such policies can fluctuate with market conditions. They invest through subaccounts, which are mirror images of mutual funds. Losses may mean higher or more premiums to pay, or no death benefit, in a worst-case scenario.

If the market performs well, of course, variable life can be a less-expensive way to buy permanent life insurance, particularly for people who need life insurance and want an investment component. But in a prolonged down market, chances are good the variable life product will underperform a traditional life policy.

"It all depends on the underlying choices made by the investor," says Marvin Feldman, president and CEO of the Life and Health Insurance Foundation for Education (www.life-line.org).

Approximately 20 life insurance companies sell nearly 95% of variable premium. Among the top 10 are Hartford Life, Metropolitan Life, John Hancock, Axa Life, Prudential Life and Lincoln National. They account for slightly more than half the market, according to Larry Rybka, CEO of ValMark Securities Inc., an independent broker-dealer in Akron, Ohio.

"There are a smaller number of carriers that sell the product," he notes," because it requires scale, meaning you have to sell a certain amount of it to be viable for a company to manufacture it."

A little less than 25% of the total permanent insurance market consists of variable life insurance. The first generation of VUL policies in the early 1980s subjected the consumer to the risk that if investment performance did not meet projections, the premium could go up or, if uncorrected, the policy would lapse. Since then, says Rybka, the most innovative companies have created a new generation of hybrid variable policies that incorporate premium and death benefit guarantees.

The investment component of variable universal life resides in the various subaccounts. Life insurance companies typically offer from 40 to 60 different choices, ranging in risk from equities to fixed-income types of investment, to emerging market investments and everything in between. Some companies have their own proprietary subaccounts. Others use a combination of their own and outside accounts to give investors more choice.

"Instead of investing in a general account, it gives the policyholder control over how the additional money is invested to grow that pot of cash," explains Cliff Barron, variable-life line leader at Hartford Life. "The concept is you're going to put money in today and grow that pot of cash for the future."

Assuming that market conditions are benign, the increasing value in these subaccounts-minus the management fees and charges-represents the policy's cash value. "The expenses are similar to those in a traditional life policy," says Feldman. "They include mortality charges, fees, taxes and other operating expenses. The one main additional fee you'll find in a VUL policy is the management fee charged to the individual subaccounts, and that fee will vary based on the type of subaccount, higher for aggressively managed accounts and lower for accounts that require less management."