An Introduction to Variable Universal Life Insurance
Variable universal life insurance combines flexible premiums with multiple investment options. It has features of both variable and universal life and offers more flexibility than whole life. The insured chooses where to invest the tax deferred cash value within the insurer’s investment portfolio. Investment can be conservative or aggressive and the risk and potential for growth will vary accordingly. The death benefit and cash value will vary depending on performance in the stock market. Premiums may be increased or decreased within set limits to suit the policyholder or market conditions. At times of low interest rates it may be necessary to increase premiums to prevent the policy from lapsing.
An advantage of variable universal life is its tax shelter. This can be used by wealthy individuals to avoid estate tax. Large sums of money can be passed on to children who have their own variable universal life insurance plans, and this money will be subject to gift tax exemption. Furthermore, variable universal life insurance has the potential to generate a larger death benefit than with standard universal life because the policyholder can move investments around. However, in the case of unfavourable market conditions, or bad investment choices the death benefit and cash value may decline. The cash value can not be guaranteed, however some polices will guarantee a minimum death benefit, but his will come at a cost.
Flexible death benefits, premiums and potential cash value growth make variable universal life insurance an attractive option. However, the possible gains must be weighed up against the risk of loosing the death benefit and cash value. Such a policy is best suited to experienced investors.
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