If you are an investment-minded person who wants both life insurance protection and the potential for market gains, variable universal life (VUL) is an ideal choice.
VUL is a type of permanent life insurance that accumulates cash value through separately managed accounts called sub-accounts. These are similar to mutual funds and can grow tax-deferred.
When you’re choosing insurance policies, there are several factors to consider. One of them is premium flexibility.
Flexible premiums allow you to pay a lower monthly rate, or pay more than the policy requires in a year, depending on your financial situation. This will help you build cash value faster and can also provide flexibility in case you run into unexpected expenses or emergencies.
Variable universal life insurance is a type of life insurance that can be used to build up tax-deferred cash value. It combines a death benefit with investment options, providing high-income earners and retirees with a way to build retirement savings.
Many people find that variable universal life insurance is a good option when they want to supplement their other savings goals. These plans can also be used for other purposes, such as paying down your mortgage or funding a child’s education.
The policy holder has the ability to allocate a portion of their premiums into separate investment accounts that operate like mutual funds. The accumulated cash value in the subaccounts can grow tax-deferred as the underlying investments perform.
However, the risk is that if the market does not perform as expected, the policy could lose its value and no money would be left to pay the death benefit. This is important to understand before deciding on a VUL policy.
It’s best to review a VUL policy when there are significant changes in your personal circumstances. For example, if you’ve recently married or gotten divorced, you may want to change the beneficiaries listed on your policy.
Another common time to consider reviewing your VUL policy is when you’re nearing retirement. You might need to make a larger contribution to your plan if you’re not already maxing out your 401(k) and IRA accounts.
Because the underlying investments of a VUL are based on a variety of mutual fund-like subaccounts, they can offer a different level of volatility than other types of life insurance. For example, if the stock market is performing well in a bull market, a VUL may have an increased return. In contrast, if the stock market is underperforming in a bear market, your VUL could see a drop in its value.
Tax-advantaged contract value
A variable universal life (VUL) policy offers tax-advantaged contract value, which can be used to cover premiums, pay operational costs and build cash value. The accumulated cash value can be invested in different investment subaccounts, depending on the insured’s financial goals and risk tolerance.
This type of policy can be an effective way to meet long-term goals. However, it isn’t designed for short-term savings purposes, so if you are considering a VUL policy, you need to be sure that you can commit to funding it for years to come.
In addition, VUL policies are subject to market cycles, which can reduce your cash value and benefit. This type of insurance is also risky because it can lapse and may result in a tax liability if you withdraw money early.
It’s also important to remember that you can borrow from your VUL policy, but it can take several years for your cash value to build up enough to qualify. If you choose to borrow from your policy, you will need to pay interest on the amount borrowed. This can add to your out-of-pocket expenses and may lower the policy’s cash value and death benefit.
If you have a variable universal life policy, it is important to review your policy on an annual basis with your financial representative. This will allow you to determine if the policy is still appropriate for your needs and whether the allocation of your cash value should be changed.
You should also be aware that the cash value of your policy will fluctuate each business day based on the performance of the investment portfolios and subaccounts in which you invest it. This is because the investments you choose can earn different amounts of interest.
As with any financial product, you should read the prospectus carefully to understand the investment objectives, risks, charges and expenses associated with the underlying investment options. You can get a copy of this information from your Farmers Insurance and Financial Services Agent.
The key is to make the right choices based on your financial goals and risk tolerance. Variable universal life insurance can be a good option for those who have a high risk tolerance and desire a permanent, tax-advantaged policy that can help fund their family’s future.
Death benefit protection
Whether you’re looking to provide for your family after you die, or want to leave a legacy for the next generation, a variable universal life insurance policy may be a good choice. It offers flexibility around premium payments and death benefits – and may offer more investment options than traditional universal life insurance policies.
Variable universal life (VUL) combines a savings component with a separate death benefit, giving you greater control over how your money is invested. It also provides a way to accumulate cash value for your family if the investment options you choose perform well over time.
Most VUL policies allow you to invest your cash value in a range of securities called sub-accounts, which resemble mutual funds. This can offer greater market exposure than some other types of permanent life insurance, but also increases your risk that you will lose value.
Like a traditional universal life policy, your cash value grows based on how well the securities in the sub-accounts you select perform over time. The returns are not guaranteed, so you should consult with your financial planner before investing in a variable universal life policy.
A VUL policy can help you build up a sum of money that will provide an income tax-free death benefit to your beneficiaries. You can also use your policy to pay off debts, or even fund a mortgage if you own the home before you die.
Your death benefit can be increased or decreased at any time – without buying a new policy, as long as you meet requirements. This can be a convenient option for people with small or no assets who want to increase their death benefit, especially if they have children or a spouse.
You can also take out loans from the cash value in a VUL policy. These are generally not taxable, but they can reduce your death benefit and cash value and make it more likely that your policy will lapse.
VUL policies also provide riders that can protect the death benefit if you become terminally or chronically ill, as well as riders that can help your beneficiaries avoid a lapse in coverage if you take out substantial loan amounts from your policy. These riders come with fees and expenses, so you should carefully consider the potential impact of these features on your individual situation.
Life insurance is a popular way to protect your family’s financial future. However, it’s important to weigh the pros and cons before making a decision.
One of the biggest factors to consider is how much risk you’re willing to take. If you’re not comfortable with the potential to lose a substantial amount of money, variable life insurance is probably not for you.
The best way to decide whether or not VUL is right for you is to review your goals, time horizon and investment strategy. If you are confident that you can fund a VUL policy over the long term, and if you have a strong risk tolerance, it may be worth considering.
Variable universal life insurance (VUL) is a type of permanent life insurance that allows you to invest a portion of your premiums in mutual fund-like sub accounts. These underlying investment options are managed by professional portfolio managers, and they allow you to diversify your investment portfolio.
You can choose to invest in a variety of mutual fund options, including equity funds, fixed income investments and money market funds. The investment returns in your VUL policy can help you build cash value that accumulates on a tax-deferred basis.
The growth of this value is based on the performance of the investment options you select. During bull markets, when stock values are high, you’ll likely see a high return on your investments. During bear markets, you’ll likely see lower returns.
If you’re unsure about your risks, or if you want to learn more about the investment options available in a VUL policy, consult with a fee-only registered financial planner. These advisors can help you assess your current needs and develop a plan to meet them.
It’s also a good idea to get quotes from several insurers. You want to find a company that has the best financial strength and lowest fees and expenses.
In addition, you want to compare the death benefits offered by each insurance company. Often, you’ll be able to get more money with a term life insurance policy than with a VUL policy.