What is Variable Universal Life Insurance?

Variable universal life insurance (VUL) is synonymous with the terms ‘death benefit protection’ and ‘building cash value’. However, any benefit comes with its share of complications. It is only those who have a deep understanding of the shares and stock market, can successfully cash in on the perks of this policy. After all, insurance requires a deep scrutiny of the liabilities. There are a range of investment options offered, along with this policy. The premium amount can be invested into any of the available options. It can be done on an individual level, which is the recommended way, or by utilizing professional help for asset allocation.

Introduction

Variable universal life insurance is a type of investment option which generates a cash value, along with providing life insurance. Its functioning is similar to a mutual fund. Thus, there can be unequal or ‘variable’ distribution of the investment. There is a great deal of flexibility with regards to the payment option. The variation can be as differential as no payment for a certain period to a maximum amount, as defined by the Internal Revenue code for life insurance. On the other hand, a routine whole life insurance requires you to pay fixed premiums regularly.

Working

  1. The amount of premium, payment frequency, and the assured amount should be decided before opting for VUL.
  2. The federal law provides for certain tax benefits which can be optimized by filling the Option ‘B’ form, which does not relate to a Modified Endowment Contact (MEC).
  3. There should be no attached strings like spouse covering, children protection or disability cover, right at the outset of your life insurance form signing. These can be integrated later on, depending upon the policyholder’s choice.
  4. The policy is generally better if it provides higher surrender value. At any stage of the deal, make sure that you get each and every query clarified from the concerned authority.

Pros

  • It offers a great deal of flexibility with respect to the payments. There is no tax load on this type as long as it entails a policy.
  • There is a wide choice of investment options from high-risk and high-paying funds, to low-risk and low-return options.
  • It provides you with a secure financial option to fall back on, in case of a premature death of an insured relative or family member.
  • It can be invested in education of your children or wards, and also makes them eligible for federal benefits.
  • The money can also be utilized as a retirement income option, or VUL qualification may also help reduce tax on real estate by constituting a life insurance trust.

Cons

  • These covers are often priced very high.
  • You need to have a sound knowledge of the market and its operations to reap maximum benefits. Hence, such companies may offer limited accounts only for an experienced person.

Thus, your requirements and resources need to be analyzed, so that this insurance can be a beneficial investment for you.




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