Variable Universal Life Insurance - Pros And Cons
Variable universal life insurance falls into the category of permanent life insurance which means that it has a cash value component. In this case, the cash value is based on investment accounts.
With the variable universal life insurance policy you can invest in a mix of professionally managed stocks, bonds and money market sub-accounts. Within these you have many investment options and can transfer funds tax free from one type to another enabling you to have a diversified portfolio.
This type of life insurance carries with it all of the potential risks of any investment. While it's true that the policy owner can possibly make far greater returns, it is also possible to lose money. As with other types of investments, you do have some control. You can choose the level of risk that you find comfortable.
Providing you have built up some cash value, you have access to that cash through loans or withdrawals. It is important to be aware however that these withdrawals may affect your death benefit. The policy owner can adjust the death benefit. You are allowed to increase or decrease your coverage based on your changing needs and financial objectives. Some policies will require you to provide evidence of insurability for increases, just the same as if you were applying for a new policy. Some policies offer guaranteed options. Be sure to ask about this. It could be another way to control your comfort level with the degree of risk. Variable universal life insurance also has flexible premiums. You are able to select the premium amount and when you will make payments so long as it falls within the company and tax rules which establish minimum and maximum amounts. Keep in mind, decisions to reduce premiums may negatively impact your insurance coverage. When choosing this type of policy, you should expect fees and expenses, management fees and possibly penalties for some withdrawals in addition to the cost of the insurance itself. There's a great deal of flexibility in how you can set up your variable universal life insurance but many of these additional options may only be available for an additional fee. The variable universal life insurance policy generally has tax advantages. If this feature is important to you, be sure you understand clearly how it will apply to your situation. This is a more complex form of life insurance, where you stand to benefit from both the security and tax advantages of a life insurance policy and the growth potential of equity investing. On the other side of the coin, depending on how the stock market is doing, you could be faced with negative cash value and end up having to increase your premium in order to maintain a policy. It is very important that you thoroughly understand all the details before purchasing a variable universal life insurance policy.
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