A Gamble On Life

It's life insurance. It's a mutual fund. It offers tax-deferred gains and tax-free retirement income. All these wonders come wrapped in a superselling insurance product -- a policy known as variable universal life (VUL). For the life-insurance industry in general, sales dropped this year. Only the variables are up, by a sterling 30 percent.

Should you join the crowd? The definitive answer is . . . maybe, but then again, maybe not. These policies carry unusual risks. But for venturesome buyers, impatient with the low interest rates other types of policies pay, VULs shine like hope.

To save you time, let me tell you who should turn the page. VULs aren't for families who need a lot of coverage, cheap. Their best buy is term insurance, which delivers death protection at a low out-of-pocket cost.

A VUL requires higher premiums, part of which pay for death protection and part of which go into what amounts to an investment fund. It's for buyers who (1) can afford full protection for their families and can put extra money aside, (2) will keep the policy for 15 years or more (preferably for life) and (3) would rather invest in life insurance than something else. This usually means higher-income people dazzled by the fact that life-insurance savings can accumulate tax-deferred.

The word ""universal'' in VUL's name means ""flexible.'' You can vary the size of the premiums you pay and change the policy's death benefit.

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