While variable universal life insurance does have an insurance component of protection, it is usually purchased by individuals for its investment value. Agents and brokers who sell variable universal life insurance must have both an insurance broker’s license and a license to sell securities. VUL is the only type of life insurance that is investment grade.
Unlike whole life insurance, variable universal coverage can be modified by the policyholder. The premiums and death benefit can be modified to meet the changing financial circumstances of the insured person.
You can also control the investment choices and can change investments of the policy’s cash value to take advantage of market trends. The disadvantage is the cash value is subject to market fluctuations and is less secure than the cash value of whole or guaranteed contracts.
Premiums and Cash Value
Premiums on variable universal life insurance include the cost of the life policy, the cost of administering the policy and investments, and the amount that the policyholder chooses to invest.
In some cases, there may be a charge for making investment changes that are folded into the premium payment. Insurers usually offer investors a choice of mutual fund-like accounts across major classes and investors can choose whether to invest in one or more of the offerings.
Variable Universal Life Insurance As An Investment
Like the returns on the cash value of other types of permanent coverage, the returns on investments in a variable universal life insurance policy are tax deferred, which makes it an excellent tax shelter.
It is a good choice as a retirement investment since the cash value can be used for low interest loans that do not require repayment. The loans are not considered income and are not subject to income or capital gains taxes so you can have a non-taxable retirement income.
Converting To A Different Policy
Most variable universal life policies allow you to covert to another type of permanent coverage without showing proof of insurability. The death benefit on the new policy must be equal to or lower than the amount of the existing one.
This can be advantage if a policyholder is diagnosed with a debilitating, terminal illness like cancer, since converting may reduce the amount of premiums without compromising the financial protection needed for the insured person’s family.
No Lapse Guarantee
When added as a rider, the no lapse guarantee keeps the death benefit in force even if the cash value reaches zero. There is a provision which requires that the premiums be paid for a specified amount of time, for instance, 5 years, before the no lapse guarantee goes into effect.
Since the risk to the cash value is greater with variable universal than with other types of permanent protection, the no lapse rider is a good addition.
Disability Waiver of Premium
The disability waiver of premium rider pays the premiums if the insured is unable to make payments due to a disabling injury or illness. There is usually a waiting period of between 90 and 180 days before the disability waiver begins payments.
This rider is one of the most popular additions to a variable universal life insurance policy and gives added peace of mind to policyholders that need to provide protection for their financial dependents if they die. The rider is optional coverage and there is a charge for its inclusion.
How Much Is Necessary?
The amount of life insurance you need depends on the purpose of the policy. If a consumer buys life insurance to provide money for final expenses, a benefit of $10,000 to $15,000 is usually sufficient. People with outstanding financial obligations should have enough coverage to pay off debts in addition to final expenses so survivors are not left with a financial burden.
Wage earners with financial dependents need enough to replace their income so their family can maintain their current lifestyle or at least survive without filing for bankruptcy till adjustments can be made. Because the death benefit has such a huge affect on your premiums, it really is important that families take time to consider their financial goals and needs and appropriately determine the best amount of protection.
Who Should Buy A Variable Universal Protection?
VUL is not the right choice for everyone since it requires that the policyholder have some knowledge and experience in financial markets and investing. Anyone selecting variable universal life insurance will have to spend some time researching the available investments and administering the cash value.
Affluent investors who want to build wealth without incurring additional tax liability are the best candidates to purchase; however, families looking to invest long-term for their retirement nest egg should seriously research the pros and cons as well to determine their comfort.
Comparing Rates with Online Quotes
Comparing variable universal life insurance rates is more complex than comparing the premiums of other types of policies since the important differences in the rates are the cost of the actual policy and the cost of administering investments.
Investors will also need to know the maximum amount they can invest annually. In addition to online life insurance rate quotes, the historical performance of the available investments should be evaluate for financial stability and long-term positive returns.
Most people who purchase variable universal coverage are primarily interested in the investment potential with the life insurance protection as a secondary consideration. Different companies offer different investment options but they usually include large, medium, and small cap stocks, as well as international options and real estate assets (REITs). Some insurance companies may also offer investment-grade bonds for purchase.
Consumers should investigate the investment opportunities of various companies before selecting their policy, since the limited options available to you will determine how much and how fast your portfolio grows.
Is Variable Universal Life Insurance Right For You?
Variable universal life insurance is an investment vehicle with the tax advantages of life insurance. It offers the same death benefit protection as other policies but the cash value investments are under your control rather than the insurance company, allowing the potential for gain or loss to be greater than if a financial advisor or manager were handling your money.