What rules govern the tax treatment of VUL policies?

The tax treatment of Variable Universal Life (VUL) insurance policies is governed by specific rules outlined in the Internal Revenue Code, which categorize them similarly to other life insurance products. This designation allows the policyholder to enjoy certain tax advantages, such as the ability to accumulate cash value on a tax-deferred basis. Additionally, the death benefit of a VUL policy is typically paid to beneficiaries tax-free, provided that the policy meets certain requirements.

These favorable tax treatments are not extended to investment products or annuities in the same way. For instance, while some investment earnings may be subject to taxes as they are realized, the structure of VUL policies permits tax-deferred growth of cash values, which aligns them with the features of life insurance rather than with annuities or purely investment vehicles.

Overall, recognizing the VUL policy treatment under the Internal Revenue Code helps policyholders make informed decisions regarding their financial planning and tax implications.