To be used correctly, the experts say, variable universal life insurance should be heavily funded and given ten years or more to deliver tax-deferred growth. That being the case, a bear market-such as the one that exists now-would seem to be a perfect time to take advantage of a low cost basis and enter into a variable universal life contract.

Then why is it that VUL sales plummeted in 2008-as they usually do during a bear market-and soared during the bull market of the late 1990s? Because, observers say, people who hold VUL contracts are like most other investors. They act out of fear and greed.
"This is a point in time where people should be looking for opportunities," says A. Raymond Benton of Lincoln Financial Advisors in Denver.

"But people don't or aren't able to emotionally do that."

Variable universal life insurance is a controversial product. Some advisors despise it. Others find them useful in some circumstances. But as the current bull market shows, very little seems to change in the VUL marketplace. Indeed, some advisors find the products useful tools, particularly in estate planning for clients who are wealthy enough to overload them with cash. At the same time, many contend they continue to be oversold and misunderstood.

Lapsed contracts continue to blemish the market, and advisors say they continue to see people walk through their doors who remain stuck in expensive, thinly funded contracts whose terms they did not fully understand. "My personal take is they really are only appropriate for very wealthy people who can afford to sock away a lot of money in these things," says Jeremy Portnoff of Portnoff Financial LLC in Westfield, N.J.

New annualized premiums for variable universal life dropped 17% in 2008, according to figures compiled by LIMRA International. Nearly 90% of VUL writers suffered declines, most in the double digits, according to LIMRA.

The drop came during a year in which the overall life insurance market was down. Whole life insurance, with a 2% increase in annualized premiums, was the only product category to show industrywide growth, LIMRA says.

Except for a few years with slight gains, VUL sales have mostly been down since peaking during the technology boom of the late 1990s. "VUL has always been highly sensitive to market conditions," LIMRA spokesman Howard Drescher says. "Since the market downturn in '01 and '02, we never saw anything like a strong recovery."

That may be partly due to the surge in lapsed policies the industry saw after the tech bubble collapsed and sent equity values into a tailspin. In many cases, the lapses were the result of policies that were sold with minimal premiums and, as it turned out, overly optimistic return projections.

It was that experience that led insurance companies to introduce risk management features, such as no-lapse riders for VUL contracts, which, for a fee, allowed policyholders to protect the contract's death benefit.