"The no-lapse guarantee features you would normally see in universal life products, and even some of the features you would see in variable annuities, have made their way into some of the VUL products," says Steve Roche, vice president of product management for The Hartford.

One of the company's most successful VUL riders, introduced two years ago, allows policyholders to access their death benefit if they become terminally ill, he adds.

While some VUL writers reported an uptick in lapsed policies last year, The Hartford-the second-largest seller of VUL policies-has not seen such an increase, Roche says. He feels this may be partly due to the company's efforts to work with distribution partners on how the product is sold.

"We are a very big player in what's called LIRP-life insurance for retirement planning," he says. "It involves putting a lot of premium into the policy for the death benefit you have."

Some in the advisory profession feel that most VUL sales are inappropriate and that clients would be better served with a mix of conventional investments and term or whole life insurance. James Hunt, a former Vermont insurance commissioner who has conducted studies on VULs for the Consumer Federation of America, says his research showed that most people were better off with term life insurance and mutual fund investments than with a variable universal life policy. "The aggregate of charges really adds up to an expensive product," Hunt says of VULs.

The one possible exception, he says, is TIAA-CREF's Intelligent Life VUL, which he says carries relatively low fees, a good mix of investment choices and a premium load of around 2%, as opposed to the 5% that's typical in the industry. The product has a relatively high mortality and expense (M&E) charge, but it scales down as the invested assets increase.

Hunt is unimpressed by the new riders that have been introduced over the past several years, saying they are often just "tricked up" policies. For example, one company he found dropped the M&E charge from its VUL product, but quietly increased the surrender charge.

Companies also typically raise the surrender charge on policies with no-lapse riders, he says. "You increase your early charges through the surrender charges so you have lower long-run charges," Hunt says.

Glenn Daily, a fee-only insurance consultant in New York, says whole life and guaranteed universal life clearly beat out variable universal life when it comes to cash value policies. "My impression is that most of the people who are buying these should not be buying them," he says.
He spoke to one woman recently who is paying $140 per month into a VUL that has a cash value of only $200. She originally put $8,000 into the policy, and pulled out $4,000 as a policy loan. Fees and market losses ate up the rest of the value.

One of Daily's pet peeves with VUL policies is that they are confusing at the point of sale. For example, he says, the policies are often unclear about the difference between gross and net rate of return. "Depending on the company, net rate of return could mean the rate of return after deducting insurance and sub-account charges, or deducting the insurance charges and not the sub-account charges," he says. "The bottom line is, I can't always tell what I'm looking at."