Variable Universal Life Insurance

Having a life insurance policy becomes increasingly important as you age, as most people strive to leave their loved ones with some form of compensation and financial support in the event of their demise. Unfortunately, many people do not quite understand the various types of life insurance policies available, and therefore cannot make the most suitable decision to meet their needs. The primary differences between each type of life insurance policy offered are the amounts of coverage provided, regulations governing payment and claim filing procedures, and the overall cost of premiums on a yearly basis. One type of life insurance (variable universal life insurance) is particularly beneficial because it provides the policyholder with the opportunity to invest funds and maximize the potential of their life insurance plan. The following paragraphs define variable universal life insurance policies, reveal reasons to utilize such policies, and discuss the fundamental differences between conventional variable and VUL insurance policies.

What Is a Variable Universal Life Insurance Policy?
Variable universal life insurance (also commonly referred to as VUL insurance) is a beneficial type of life insurance policy that gradually amasses a cash value, which can be invested into a plethora of other investment account types. Variable universal life insurance is one of the four types of cash value insurance policies – with the other three being whole, variable life, and universal. Thus, VUL insurance is actually a hybrid between variable life insurance and universal life insurance. Similar to a whole life insurance policy, a VUL insurance policy has an actual cash value (tax-deferred) that gradually grows and can be borrowed from. Unlike other life insurance policies, variable universal life insurance policies allow the policyholder to decide how the premiums are invested (usually from a selection of anywhere from 10 to 30 available investment accounts).

The Difference Between Variable and Variable Universal Life Insurance
With a conventional variable life insurance policy, the majority of the premium is invested into separate investment accounts (i.e. – stocks, bonds, mutual funds, money market funds, or fixed income investments), which the policyholder has the freedom to choose from. Policyholders also may be able to switch from one investment to another, depending on the specific terms and conditions of their policy. Unfortunately, variable insurance policies can be risky because the cash value and death benefits of the policy can fluctuate frequently depending on the performance of the policyholder's investment portfolio. On the other hand, a variable universal life insurance policy allows the policyholder to not only invest their premiums as they see fit, but also to alter the amount of policy coverage. Thus, the primary difference between a conventional variable and variable universal life insurance policy is the ability to maintain and control the amount of death benefit offered with policy.

Reasons to Use a Variable Universal Life Insurance Policy
Before selecting a variable universal life insurance policy, it is important to thoroughly review your short-term and long-term financial goals. Individuals that would like to provide a large sum of money at time of their demise to be used by their spouse, to pay for estate taxes, or to provide an ongoing loan for specified friends or relatives, may be interested in a variable universal life insurance policy. Variable universal life insurance policies provide many of the same benefits as conventional variable life insurance policies, yet offer more stability in terms of death benefits allocated to plan beneficiaries. In simple terms, with a conventional variable life insurance policy the death benefit fluctuates based on the performance of the policyholder's investment portfolio, while with a variable universal life insurance policy the death benefit can be maintained and controlled by the policyholder.

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