Unlike normal whole life products that accept premiums to grow cash value until the policy matures, variable universal life (VUL) policies offer investment options that come with some level of risk, as with any other type of investment.
Such products enable policyholders to invest in a wide variety of bonds and stock options and can have varying premium amounts based on the performance of the investment options chosen.
VUL policies are a type of permanent life insurance due to the fact they provide a death benefit when the named insured dies.
But the cash values must be maintained to avoid the policy lapsing if the investments do not accrue value and instead wind up losing money.
When investments are doing well, premium amounts are lowered.
When they are not doing well, larger premiums must be paid to keep the VUL policy in force.
As with whole life plans, once the cash value reaches the amount intended for the death benefit, then that policy has matured and no other premiums must be paid.
If the investments grow at a greater rate than expected, the final death benefit will be larger than the face value sought for coverage.
That can mean a much larger financial legacy for beneficiaries.
Some VUL policies allow for policyholders to take out loans against their accrued cash value.
But the loans must be repaid plus interest to ensure they remain viable and funded properly.
And because of the investment options, the U.
S.
Securities and Exchange Commission has some authority over variable universal life plans.
Also, by law, such plans only can be sold by insurance producers who have passed their respective state life insurance examinations and are fully approved for selling variable whole life products.
A big advantage of VUL plans is they have a tax advantage because they are in fact insurance policies, so there is no federal income tax applied to benefits paid out.
The tax-free component makes it possible to give annual cash gifts to children for investment in VUL policies.
Loans then can be taken out against the cash value to help pay for tuition, vehicles, a down payment on a home and other purposes without facing a tax penalty.
Some VUL policies also give a guaranteed death benefit after being in force for a predetermined number of years in order to lessen the potential blow of an investment souring and causing a financial loss.
A minimum premium amount must be paid to keep the insurance in force.
And so long as that is done, a death benefit will be paid despite other investment performance, which can be a big help during times when stock markets make corrections and many people take a loss on their investments.
Such products enable policyholders to invest in a wide variety of bonds and stock options and can have varying premium amounts based on the performance of the investment options chosen.
VUL policies are a type of permanent life insurance due to the fact they provide a death benefit when the named insured dies.
But the cash values must be maintained to avoid the policy lapsing if the investments do not accrue value and instead wind up losing money.
When investments are doing well, premium amounts are lowered.
When they are not doing well, larger premiums must be paid to keep the VUL policy in force.
As with whole life plans, once the cash value reaches the amount intended for the death benefit, then that policy has matured and no other premiums must be paid.
If the investments grow at a greater rate than expected, the final death benefit will be larger than the face value sought for coverage.
That can mean a much larger financial legacy for beneficiaries.
Some VUL policies allow for policyholders to take out loans against their accrued cash value.
But the loans must be repaid plus interest to ensure they remain viable and funded properly.
And because of the investment options, the U.
S.
Securities and Exchange Commission has some authority over variable universal life plans.
Also, by law, such plans only can be sold by insurance producers who have passed their respective state life insurance examinations and are fully approved for selling variable whole life products.
A big advantage of VUL plans is they have a tax advantage because they are in fact insurance policies, so there is no federal income tax applied to benefits paid out.
The tax-free component makes it possible to give annual cash gifts to children for investment in VUL policies.
Loans then can be taken out against the cash value to help pay for tuition, vehicles, a down payment on a home and other purposes without facing a tax penalty.
Some VUL policies also give a guaranteed death benefit after being in force for a predetermined number of years in order to lessen the potential blow of an investment souring and causing a financial loss.
A minimum premium amount must be paid to keep the insurance in force.
And so long as that is done, a death benefit will be paid despite other investment performance, which can be a big help during times when stock markets make corrections and many people take a loss on their investments.