Variable Universal Life Insurance Explained

Variable Universal Life InsuranceWhen buying life insurance it can get a little tricky when they throw some crazy vocabulary at you. The good news is that you are making the best decision reading this article because we will be discussing Variable Universal Life Insurance today. Don’t get intimidated by their fancy vocabulary because in no time you will know what they mean by these words and you will be one step closer to finding the best life insurance company for you!  The bad news is that these type of policies are not easy to understand and have a lot of industry jargon. In this article, we will be unraveling variable universal life insurance to see if it is the right product for you. The following are some key points from this article;

  1. Variable universal life insurance is a permanent life insurance plan. The difference between a variable universal life insurance policy and a traditional universal life insurance policy is that a variable universal life takes your cash value and invests in sub-accounts that are quite similar to mutual funds.
  2. Variable universal life insurance is really not that different than a traditional life insurance policy like whole life or universal life because it still is a life insurance policy. There are three parts that are most important when buying coverage and that is the death benefit, beneficiaries, and premiums.
  3. You should keep in mind that like all investments, the cash value will fluctuate depending on how well each investment is doing. 
  4. PROS: fixed premiums, guaranteed death benefit, you can grow on a tax deferred basis, the ability to borrow from, and investment variety.
  5. CONS: trouble understanding it, more expensive than other types, self-managed. 
  6. If you don’t have time on your plate then honestly don’t buy a variable universal life insurance policy because like we said earlier, you’re in charge of making investment decisions. It’s not a bad thing not having enough time, that just means you are working like a busy bee and a term life policy would be perfect for you. Term life insurance is a super affordable and easy life insurance to have and if you are looking for something more long term then you should consider buying a whole term policy.
  7. In order to determine how much life insurance coverage you and your family need, you will need to revisit a couple financial factors to obtain your answer. You need to find out how much debt you have and would leave behind after you pass away because all the unpaid expenses will be passed down to your family members. Before you purchase a plan you should sit down and add up all your debts, your mortgage, your car payments, student loans, and literally anything else that could be passed down to your loved ones. After you complete those tasks you will have a starting point for how much life insurance coverage you need to buy.

Variable Universal Life Insurance Explained

Variable universal life insurance is a type of permanent life insurance coverage. The difference between a variable universal life insurance policy and a traditional universal life insurance policy is that a variable universal life takes your cash value and invests in sub-accounts that are quite similar to mutual funds. In other words, variable universal life (VUL) is a life insurance policy type in which the coverage amount can change due to the investment performance of the policies sub accounts.

Keep in mind that all life insurance products are designed to provide financial protection for your loved ones in the event of your death. You probably already know this but there are two main categories of life insurance called term and permanent. Permanent life insurance is not a real product but they are also referred to as “cash value insurance”, permanent life insurance has several products such as Whole life and Universal life, even Variable and Index Universal life insurance are a form of permanent life insurance.

Like we mentioned earlier, variable universal life insurance is another form of permanent life insurance and cash value gets invested into a number of sub-accounts. The thing about variable universal life insurance unlike whole life insurance, there is no stability or guarantee which makes this policy high risk.

How Variable Universal Life Insurance Works

Variable universal life insurance is really not that different than a traditional life insurance policy like whole life or universal life because it still is a life insurance policy. There are three parts that are most important when buying coverage and that is the death benefit, beneficiaries, and premiums. The death benefit in a life insurance policy is so important because you don’t want to leave your loved ones with a hefty funeral price tag. A beneficiary is someone that can receive the death benefit on your behalf and a beneficiary can be family, a friend, or even an organization. There can be more than one beneficiary. Your premiums are payments that go towards your life insurance policy that you can choose to pay either monthly, semi-annually, or annually.

Like we just mentioned, premiums are payments that go towards your life insurance policy. With a variable universal life policy, a certain percentage of your premiums will go into the cash value of your policy. Your cash value will be invested in the sub-accounts kind of like mutual funds that we touched base on earlier.

You should keep in mind that the cash value will be based on the investment choices you make. You can use certain strategies so that to pull out funds from your variable universal life insurance policy before you die.

Variable Universal Life Insurance PROS

Variable universal life insurance may not be for everyone but if it can be a good fit for some people. One of the pros that come along with variable universal life insurance is that it has fixed premiums. Having fixed premiums mean that you no longer have to worry about your premiums rising in the future. Another pro is that variable universal life insurance offers a guaranteed death benefit. This means that the death benefit amount that goes to the policy’s beneficiaries is guaranteed. Another pro is that you can grow on a tax deferred basis. This can help those funds to accumulate faster and they will not be subject to tax.  Most people may not know but variable universal life insurance has the ability to borrow from. The funds that are in the investment component of your policy can be borrowed by the policyholder at little to no interest. The last pro is one that we already know and that is that variable universal life insurance is an investment variety. A portion of your premiums will be put into your cash value which in return gets invested into numerous sub-accounts.

Variable Universal Life Insurance CONS

Variable universal life insurance is a tricky policy type and if you have trouble understanding it, then you should simply not buy it. A con of variable universal life insurance is that the policy can get pretty costly and is not an ideal product for someone who is looking for pure death benefit protection.

Variable Universal Life Insurance or Term life insurance?

This is a pretty often asked question because everyone wants to make sure what they are getting is the best for them. Unfortunately, we cannot answer that question because it all depends on your specific needs, health, and lifestyle. So for some people, it may be ideal to invest in a variable universal life insurance policy but for some, they may not have enough time on their hands to do an investment. If you don’t have time on your plate then honestly don’t buy a variable universal life insurance policy because like we said earlier, you control the sub accounts and is based on your investment experience. It’s not a bad thing not having enough time, that just means you are working like a busy bee and a term life policy would be perfect for you. Term life insurance is a super affordable and easy life insurance to have and if you are looking for something more long term then you should consider buying a whole term policy. Term life insurance usually depending on the carrier offers term lengths of 5, 10, 15, 20 or 30-years.

You have other options

If you decided that you are not the type of person who loves to invest don’t waste your time with this policy. You do have other options when it comes to buying life insurance such as term life or any other permanent life insurance policy. Term life is a cheaper and simpler alternative to variable universal life. Term life is a form of temporary life insurance and only provides coverage for a short and specified period of time. Whole life is a type of permanent life insurance in which provides coverage for, you guessed it, your WHOLE life and creates cash value over time. You can even purchase a traditional universal life insurance policy which is another form of permanent life insurance so it does offer permanent coverage. You could even build cash value and have flexibility in terms of premiums and your death benefit to fit your ever so changing life.

How Much life insurance should I purchase?

Whether you get a variable universal life, Term life, or Whole life insurance policy you will need to determine how much coverage and if this coverage amount is enough. If you have coverage that is too little you may as well not have insurance at all. In order to determine how much life insurance coverage you and your family need, you will need to revisit a couple financial factors to obtain your answer. You need to find out how much debt you have and would leave behind after you pass away because all the unpaid expenses will be passed down to your family members. Before you purchase a plan you should sit down and add up all your debts, your mortgage, your car payments, student loans, and literally anything else that could be passed down to your loved ones. After you complete those tasks you will have a starting point for how much life insurance coverage you need to buy. You should also consider replacing your income for any financial loss that your family would suffer in the case that you pass away. This is important for someone who is the breadwinner because you don’t want to add any additional financial strain to your family when you pass away.

Work with Us!

In conclusion, whether or not you have decided that variable universal life insurance is the way to go we always recommend for you to look into each different type of life insurance while analyzing your specific needs, health, and lifestyle at the same time. You should also take advantage of our FREE service. We will do all the shopping for you so that you can sit back and relax. We won’t rest until we find the best life insurance company in which reflects your needs, health, and of course your lifestyle. Then we will fill out their necessary application, and BAM that’s it, you have coverage, just that simple. We are an independent life insurance agency who work with over 60 top rated companies. This gives us more criteria to work with, so give us a call today so that you can spend less time researching and more time with those who matter the most, your family.

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About Mack Dudayev

Mack is owner and life insurance expert at InsureChance. On a mission to create a way everyone can understand, afford and attain the right life insurance coverage to protect their financial responsibilities.

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