Variable Universal Life. Does it make sense?

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I am looking at a VUL model. Considering funding it at $100k per year. The ROI isn’t that great even after 20 years, unless my tax bracket is significant. But the idea of being able to access tax free funds starting at 55 sounds appealing. Especially if we retire early. But would it be better to just invest that money in real estate or equities and eat the cap gains down the road?

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I like to think of taxes as just another set of fees, in this case a backend fee on the gains. And then determine the ROI based on that.

Anyways, I ran a monte carlo simulation using the historical returns of the Total US Stock market for 20 years ($25,000 invested quarterly), and to be conservative, I looked at the rate of the return at the 33rd percentile, which was about 9.32% (50th percentile was over 11%).

So if you invest $25,000 quarterly for 80 quarters (20 years) at 9.32% you would have $5,608,939 of which $3,608,939 are gains. Assuming 25% tax (round number) on those gains (as if you're taking the gains all at one), that would leave you with $4,706,204 after taxes, which is equivalent to about a 7.826% rate of return (if not taxed).

So with a conservative return, assuming pretty much max capital gains paid all at once at redemption, the VUL would have to beat a 7.826% return just to be even possibly worthwhile.

And if my understanding is correct, the only way to actually access those funds in a policy like that before death is through a loan, so you're essentially borrowing on interest to access your funds (and what is not paid back is deducted at death).

Plus with investments in a taxable account, especially with the amount you're investing, you will have access to margin loans at pretty low interest rates (e.g., 3.33% on anything about $100k on interactive brokers and 3.08% on an anything above $1 million), and even portfolio margin (higher leverage). So you cannot only borrow against it like with VUL, it's essentially a line of credit that increases as the investments appreciate that you can access whenever and use however you want, which is what a lot of wealthy people do (buy, borrow, die). Plus you have liquidity to access the actual funds if you would prefer.

I've been told these types of policies may make sense for some high wealth individuals, but I've never seen an example where the math favors it over the alternatives, even after accounting for taxes and more conservatives returns.

I am 37 and own two healthcare businesses in NOLA. I actually just killed the exact policy youre describing. I was two years into funding it at 25k per year, and surrendered it for a whopping 14k (36k loss) because I decided I would rather kill it now than keep funding this thing when I could just put the money into other stuff. It was time to fund it again and I just didn't understand it. Someone I trust put me in it a few years ago and I didn't understand it then, and should have stayed away but let myself be talked into it.

Hard lesson learned, but my advice would be to avoid it.