Variable Universal Life Insurance – An Overview
Variable universal life insurance (VUL) is a unique type of permanent life insurance that builds a cash value over time. In a V UL, the money value can be invested differently in a wide array of different accounts, much like mutual funds. Because the policyholder is not restricted in how he can invest the money, he can choose what investments to make over the course of his lifetime. It is also a very flexible form of life insurance. In addition, because it is tax-deferred, you may also convert it into an IRA and take advantage of tax deferral advantages.
As with any other type of permanent life insurance policy, there are two major benefits of variable universal life policies. First, there is the death benefit. Any death that the policyholder receives from the policy will be paid to the beneficiaries, without tax or legal action being required. In this way, variable universal life policies provide a tax-free death benefit.
Another benefit is flexibility. Unlike most types of permanent life insurance policy, variable universal life insurance policies allow the policy owner to adjust the premium payments in real increments, instead of making lump sum premium payments at the time of death. This gives the policy owner great flexibility in terms of how he views his long-term financial situation. The flexibility can be adjusted as needed, based on the needs of the policy holder.
Because the policyholder retains more of the risk than the insurer, a variable universal life insurance policy carries more of a risk than many other policies. There is increased risk for the insurer when the premium payments are not made for a number of years. The age of the insured also plays a part in this risk. If the insured is older, he has less of a chance of making premium payments for many years.
A variable universal life policy is not a loan and therefore does not accrue interest. Instead, the premium payment is applied to a death benefit. When this benefit is invested, the death benefit increases. The cash value of the investment, plus the benefit received from the investments, will determine whether or not the premiums will be paid.
However, the benefit of variable universal life policies can sometimes be limited by how much cash value is available from the investments. If there is not enough cash for all of the death benefits, then the premiums paid would decrease over time. Premiums can also be affected by how long you live. If you are relatively young, you may want to think about a variable life policy. If you are very old, you may want to stay with your permanent life insurance policy.
Variable universal life insurance policies are more risky than other types of permanent life insurance policies because of the investment risks. Because of this risk, they tend to pay out less in the event of a loss. However, they can provide an investment portfolio that can grow over time. In addition to increasing the death benefit, these investments also increase the cash value growth rate. Variable universal life policies can pay out a higher cash value in the event of a loss than other permanent life insurance policies could.
Variable universal life insurance coverage is very flexible. With so many different choices for investment products, you are allowed to customize the plan to fit your financial needs and life style. You can build cash value by making the most prudent use of all of your assets, or grow your savings with investment options. This type of policy allows you to make the most of your money, while still maintaining your comfortable lifestyle.