Variable Universal Life Insurance
What Does Variable Universal Life Insurance Mean?
Variable universal life insurance is a type of permanent life insurance policy, meaning it does not expire as long as the insured continues to pay the premiums. These policies also build cash value, which the insured can access and use while alive.
As variable policies, the cash value does not guarantee a fixed return. Instead, the funds are invested in options like the stock market, bonds, and mutual funds. Anyone weighing a VUL policy often compares it against indexed universal life insurance, which caps both losses and gains by tying returns to a stock index rather than direct market investments. Additionally, the insured has the flexibility to adjust the amount they pay each year for coverage; the annual premium is not fixed. However, the insured must pay a minimum amount set by the insurance company each year, or the policy will lapse.
Insuranceopedia Explains Variable Universal Life Insurance
Variable universal life insurance policies combine life insurance with an investment account. They can be a good option for individuals seeking higher long-term returns on their cash value and who are willing to tolerate some risk. These policies have the potential to earn more annually than traditional whole life insurance. However, there may be years when the returns are lower due to poor investment performance.
The universal feature is also beneficial for those who prefer flexibility in their premium payments. However, it requires discipline, as failing to contribute enough could result in the inability to maintain the policy in the future. Over time, the cost of insurance increases, so the insured must save sufficiently early on to afford the higher premiums later. Because premiums and cash value performance vary widely between insurers, it pays to compare quotes from the best life insurance companies before committing to a VUL policy.
