Universal Life Insurance - Variable Universal Life Insurance

Universal Life Insurance

A more flexible version of the whole life insurance is this Universal Life Insurance (UL). It is also referred to as the 'flexible Premium Adjustable Life Insurance'. It has a saving feature that grows on a tax-deferred basis. The insurance company invests a portion of your premiums in stocks, bonds, mortgages and money market funds. The returns are credited to your policy tax-deferred. No matter how the investments perform, the insurance company guarantees a minimum return on your money. A guaranteed minimum interest rate is applied to the policy, which is usually 4%. On the contrary, if the investments do well, you get higher interest rates on the accumulated cash value. You have two death benefits to choose from

Variable Universal Life Insurance

Commonly called the VUL, this insurance is a versatile product, providing both insurance protection and investment component. It allows the facility to choose the timing and amount of your premium, subject to the company minimums and IRS maximums. Its flexible investment fund option, gives it an edge over universal life policies, which gives only fixed returns. It helps to cover the cost of insurance component of the product and helps in building funds. Variable universal life insurance usually combines the benefit of both universal life and variable life insurance, thus putting you right in the driver's seat. Your death benefits may rise or fall according to the stock markets. But even with the fluctuation in the stock market, it ensures that a minimum benefit is still paid to the beneficiary. Federal securities laws and SEC regulate such policies. This kind of Insurance allows a person insured to build up a steady stream of assets for retirement while enjoying the other benefits associated with most insurance policies. Hence a unique feature of variable universal life insurance is that it permits the insured to enjoy requisite variable life insurance policy benefits as well as equip himself financially for his old age. This type of insurance allows for investment opportunities, flexible premiums and variable death benefits.

It offers the benefit of premium and death benefit flexibility. It promises increasing cash value with respect to the performance of the choice of the underlying funds. Since it is tied to the performance of various security markets, it could provide security against inflation. Another advantage of this variable universal life insurance is that it allows you to borrow or withdraw money from the policy during your lifetime. It is a better deal for the younger generation policy owners with long-term investment horizons. When compared to other permanent life insurance schemes, it is more expensive since the premium is charged for the cost of insurance, mortality and expense charges and expenses associated with the underlying funds.

Your death benefit in variable life insurance policy is proportional to the profits you are able to accumulate in your investment account. Hence your death benefit may experience a rise or fall depending on fortunes in the stock market. If the stock market has been doing relatively well over a period of time, it will allow you to enhance the money value of your policy. However if stock markets have not been performing well, then you will be assured still a minimum death benefit at the appropriate time. You will be responsible for the additional death benefit you accumulate in your account i.e. you have to assume all responsibility for the securities you invest in. The Security Exchange Commissions, rules of the stock exchange and other governing bodies control variable Universal Life Insurance products. One effective way of enhancing the cash value of your policy is to safely invest in all profitable securities. This safe investment in securities protects you from inflation. This policy allows cash withdrawals and borrowings at your own convenience.

Another word of advice is that if you are going to take this policy, then you need to equip yourself to understand the movements of the stock market.

Variable Life Insurance guarantees a financial compensation to the beneficiaries as named by the insured in case of the death of the insured. Under this policy, a minimum sum of money was guaranteed to pay and there is a separate account maintained. In this account, based on investments in high yielding securities and equities, a sum is paid every month to the insured. Variable life insurance policy assumes some kind of risk. Nevertheless, the insured and his beneficiaries are guaranteed a minimum amount, which is tax free inclusive of the money value of the policy.

Variable life insurance policy has various advantages. There is no limit to the amount that can be invested. If the policy is in the name of the child, the parent still retains complete control over the policy. A person is allowed to withdraw money from the additional investment account with the policy on a tax-exempt basis. This policy is a good college investment option for children with dependable returns. However there is a high cost involved with large commissions and other expenses to be borne. On the whole, returns from such a policy are not commensurate with expenses involved. The premiums are not deductible and too many withdrawals can result in the lowering of policy benefits on insured's death.

If the withdrawals from the account work out to be greater than premiums paid, then the difference amount has to be borne in the form of income tax payment. Continuous withdrawals can result in the insurer (insurance company) moving the balance amount to another account with a fixed pre-determined rate of return. If the insured dies much earlier than the stipulated period of the particular variable life insurance, the beneficiaries get only the policy benefit and the value of the additional investment account is lost.

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