Variable Universal Life Insurance
Variable universal life insurance is a versatile financial tool. Not only does it provide life insurance coverage, it accumulates equity under tax-advantaged status.
A practical use for variable universal life insurance is to invest in the policy for as long as life insurance coverage is beneficial (while children are financially dependent, there are debts to pay, etc.), then to surrender the policy for its cash value and use that equity to fund a retirement.
A good investment vehicle
Characteristics of universal life insurance:
- Its cash value builds interest tax-free.
- It's cheaper than whole life insurance.
- Unlike other types of life insurance, premiums may be of any size and regularity (subject to federal restrictions).
Characteristics of variable life insurance:
- The policyholder determines where the cash value should be invested and receives the interest from said investment(s).
- The policyholder can divide his cash value among multiple securities.
- The policyholder can relocate his cash value at any time during the life of the policy.
Cash value growth & decline in variable universal life insurance
As with universal life insurance, the entirety of each premium paid goes into the policy's cash value. The insurance company collects takes its fee by making periodic withdrawals from the cash value. The cash value accrues interest tax-free.
Variable life insurance raises a risk which non-variable insurance avoids, however: the policyholder's investment decisions can actually lead to a negative return on investment, which results in a decrease in cash value. This escalates the danger of neglect: if a policyholder ignores his policy, the cash value could slip below the price of insurance, and when the insurer next executes a charge against the policy, the money will not be available and the policy must lapse.
Investing cash value
Your policy will specify the securities in which its cash value may be invested. Investment options cannot be unlimited because government regulation entails that each variable life insurance product stipulate exactly where the policy owner may place its cash value.
Money management fee
Administering a variable insurance policy takes more work than other cash value life insurance policies do because each variable policy's cash value must be invested separately (rather than invested as a conglomerate with the rest of the insurer's assets). Not only that, the cash value investments must be redistributed at the policyholder's instruction. To cover the cost of this administration, a small percentage of the cash value being managed is paid to the money manager.
Variable universal life insurance is probably the most demanding of all life insurance types. Term life insurance is the simplest.
For further assistance or to purchase variable universal life insurance, make use of one of our licensed life insurance advisors for free. Call 1-800-823-4852 today.
