Variable Universal Life Insurance Pros and Cons
Unlike other types of universal life insurance, variable universal life insurance allows policyholders to invest the cash value of their policies in different accounts, like stocks, bonds, and commodities, similar to mutual funds. Policy owners can invest all the cash value of the policy in a single account, or invest the money in several different accounts to maximize their return on investment.
Like all life insurance, consumers should weigh variable universal life insurance pros and cons before deciding variable universal life insurance is the right type of policy for your needs. After learning about the different types of policies and determining the best coverage for your family, compare rates with online life insurance quotes to find affordable policies and insurance companies.
Flexible Premiums – Pro
Unlike whole life insurance and level term life insurance which have fixed premiums, variable universal life insurance has flexible premiums with a minimum and maximum payment. A portion of the premium pays for the life insurance and the balance is diverted to the investment accounts, building the policy’s cash value. The more premium a policyholder pays, the faster the cash value of the policy grows. If the insured is unable to make a premium payment, variable universal life insurance policies allow the payment to be made from the cash value of the policy, so the policy doesn’t lapse and stays in good standing.
Riskier Investment – Con
Unless the variable universal life policy has a minimum guaranteed rate of return, the insured person could lose his investment since the financial instruments used to generate income also have the potential for loss. While most whole life insurance guarantee a reasonable, safe return on the cash value of the policy, the guaranteed rate of return on variable whole life policies can be as little as 2%. Once the fees associated with the investment account are deducted, the insured person’s return on investment may be zero for the year.
However, with high risk comes the potential for high returns, and universal life insurance has the ability to produce outsized returns on good years. Applicants should weigh the pros and cons of fluctuations in their investments, and evaluate whether they have the financial ability to withstand large swings in their account.
Tax Advantages – Pro
The returns earned on the cash value of life insurance are tax deferred until they are removed from the policy. By using the policy cash value for no interest loans, the insured person can avoid paying taxes on returns indefinitely while he would have to pay up to 15% capital gains tax on returns on a regular investment account. The only caveat in the deferred income tax is that if the loans ever equal the cash value amount, the policy lapses and all the income taxes come due in a lump sum, which could be substantial.
Life Insurance Rates – Con
Term life insurance is temporary life insurance with no cash value and it offers cheap premium rates, which are lower than those of variable universal life insurance. However, variable universal life insurance is more affordable than the other form of permanent life insurance, whole life. For adults, parents, or seniors who simply need or want life insurance protection for financial dependents, term life insurance offers the lowest rates.
Variable universal life combines a life insurance policy with an investment vehicle and the price reflects the dual nature of the policy. If an applicant is looking for a way to build a nest egg for retirement or grow a financial asset, universal life insurance policies may be the best coverage.
Life Insurance Quotes
Variable universal life insurance allows policyholders to maintain more control over their investments than other types of universal life insurance. VUL policies can be a useful tool in financial planning and the flexible premiums are an advantage to those whose income is seasonal or subject to fluctuations, allowing them to maintain a life insurance policy even when they can only make a minimum premium payment.
As a permanent life insurance policy, universal life insurance does not lapse or need to be renewed as with term life insurance. Consumers should consider all the risks and benefits associated with variable universal life insurance when considering the purchase of a policy.
When making a financial decision, it is best to have all the information you need to make the right choice for your needs. After evaluating variable universal life insurance pros and cons, consumers should consider getting free, instant life insurance quotes. By entering your zip code and beginning a life insurance quote now, you can compare rates, coverage, policies and life insurance companies to find affordable, low cost life insurance.
Life insurance quotes will give you an idea on costs, help you make a decision on how much life insurance you need to buy, and save you money when you purchase life insurance in the future.
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