What is Variable Universal Life Insurance?

The world of life insurance can seem like a daunting place, especially if this is the first time you are looking to take out a policy. There are many options to choose from and each of them have different benefits.

You may have heard of variable universal life insurance and are now wondering exactly what this is and if it is the right option for you. 

Trying to decide on which type of policy can be difficult, especially if you don’t have a good understanding of all the different ones on offer. To help you narrow down your choices it can be wise to speak to a qualified life insurance broker.

What is Variable Universal Life Insurance? 

Often when you have young dependants or are still paying off your mortgage you will need life insurance with a large death benefit in the event of your death. However as your circumstances change and you no longer have a mortgage or dependants relying on your income you may not need such a large lump sum of money to be paid out.

Life insurance with a cash value option may be a good alternative, allowing you to be able to access some of the money tied up in your insurance whilst still giving you permanent life insurance cover. 

Variable universal life insurance is a type of permanent life insurance but with a built in savings component. The premiums you pay are somewhat flexible. It is built on traditional universal life insurance but has separate sub accounts where you invest the cash value in the market.

Of course the markets can fluctuate so your return on investments is never guaranteed. You may see great returns or significant losses. 

How does it work?

Variable universal life insurance works in two parts. You have your life insurance which will pay out a lump sum to your family in the event of your death and then separate sub accounts which act as the savings component.

When you pay your premiums each month, your insurer will take the amount that is needed to cover the life insurance policy and administration fees. The rest remains in the account to be invested and hopefully earn great returns.

With a whole life insurance policy the insurance company decides where to invest but with a variable universal policy you can decide where the cash value is invested. Your insurers will advise you on which sub account options you can invest in and then the decision is up to you. 

How will variable universal life insurance benefit me? 

When you have built up the cash value amount you can access this by either making a withdrawal or borrowing some of the funds. Although it is important to remember that if the total amount of the cash value decreases below a certain level your premiums will increase. 

You could use this money for – 

  • Savings for children. 
  • Purchasing property. 
  • Funds to pay estate taxes.
  • Saving for your retirement.  

What are the pros?

  • You have the benefit of permanent life insurance with a cash withdrawal option. 
  • You can adjust your premium amount or decide to use your cash value to cover the cost of the premiums. You are also able to adjust the amount of your death benefit paid to your loved ones.  
  • If you have previous investment experience this could be a perfect fit. 

What are the cons? 

  • You cannot withdraw cash immediately. You will need to wait until the cash value has built up over time. 
  • This type of insurance requires a lot of monitoring so may not the best option if you would rather have a hands off approach. It can also be complicated so you will need a thorough understanding of how it works before committing to a policy. 

How do I decide which policy is the best one for me? 

Trying to decide on which type of policy can be difficult, especially if you don’t have a good understanding of all the different ones on offer. To help you narrow down your choices it can be wise to speak to a qualified life insurance broker. Not only can they help you with your decision but they can also provide you with quotes from different insurance companies ensuring that you get the best level of cover for the best price. 

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