Universal Verses Variable Universal Life InsuranceUniversal Verses Variable Universal Life Insurance

Universal life insurance and variable universal life insurance are both types of permanent life insurance. In this article, we will compare universal verses variable universal life insurance so you can decide what is best for you.

Universal Life Insurance Basics

With universal life insurance you are able to build cash value by making premium payments. This cash value earns an interest rate and grows at least at a guaranteed minimum. You have the ability to change the size and frequency of your premiums. Making these adjustments can help you accumulate cash value more quickly. There will be monthly deductions from your cash value that cover costs associated with your insurance contract. You can access your cash value while you are alive. However, any amount you do not repay will be taken out of your death benefit.

Variable Universal Life Insurance Basics

Variable universal life insurance works a lot like universal life insurance. However, instead of earning a minimum interest rate your cash value is invested in subaccounts like mutual or index funds. Because of this, if the market does well your cash value will increase. On the other hand, if the market does poorly your contract may lose value.

4 Ways These Policies Are Similar

  1. Your Death Benefit Can Be Permanent: If your adequately fund your contract you will have a death benefit. To ensure this happens you may need to increase your premiums to cover increased fees.
  2. Cash Value Accumulation: Part of the premium you pay goes toward your cash value. This means the larger your premiums are the more quickly your cash value will grow.
  3. Adjustable Premiums: Both universal and variable universal life allow you to adjust your premiums. This can be helpful as your budget and death benefit requirements change.
  4. Tax Advantages: The cash value in both universal and variable universal life policies grow tax deferred. Any personal loans you take are not taxable and the death benefit is also tax free for your beneficiaries.

4 Ways These Policies Are Different

  1. Variable Universal Life Lets You Choose Investments: Universal life comes with a minimum guaranteed rate of return. But with this type of policy, you do not get to choose what you invest in. The dependability of a guaranteed rate of return comes with less control over your policy. With a variable universal policy your cash value into investment-based subaccounts that you choose. This provides you with the potential for higher rates of return, but also comes with the potential for loss.
  2. Variable Universal Life Comes with the Risk of Principal Loss: With a universal life insurance policy your cash value will never decrease due to market fluctuations. With variable universal life insurance, you do expose yourself to the risk of losing principal due to market downturns. In some instances, the loss may be so significant that you lose your cash value or decrease your death benefit.
  3. Variable Universal Life May Have More Fees: Both universal and variable universal life come with fees that will pay for coverage and the insurer’s cost of doing business. Variable universal life may have more fees because of having investment options.
  4. Variable Universal Life Tends to Be More Complicated: Variable universal life is more complicated than universal life because of the investment component. You may want to enlist the help of a financial advisor to help you pick the best subaccounts for your needs.

Find Life Insurance for Your Needs

No matter what life insurance type you choose, they will all provide for your family’s wellbeing. When it comes to universal verses variable universal life insurance, they both will allow you to accumulate a cash value and make changes to the amount and timing of your premium. However, universal life will give you a guaranteed minimum rate of return on your cash value and variable universal life’s rate of return will be based on the performance of subaccount investments. These policies are more complex than a whole or term policies will be. Be sure to meet with a financial advisor so they can help you review the benefits and drawbacks of universal verses variable universal life insurance.

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