Variable Universal Life Insurance
Variable universal life insurance is a type of permanent life insurance policy. Depending on your financial situation it can be a helpful financial planning tool. In this article, we will explain how variable universal life insurance works and what it can do for your portfolio.
With a variable universal life insurance policy, you pay your premiums into a special saving component. From this savings component, your insurer will deduct the amount required to cover your mortality and administrative costs. Any remaining funds are kept in an account in which they can be invested and accrue interest.
Individuals who choose to purchase a variable universal life insurance policy usually do so because it offers more flexibility and growth potential than a traditional whole life policy. The separate investment component of the policy is set up similarly to a mutual fund. This gives the policyholder a large variety of stock, bond, and money market options to choose to invest their cash value into. Such a wide variety of options can help to maximize cash value.
Why is increasing the cash value important? Mainly, this is because it will reduce your out-of-pocket premium costs. Variable universal life insurance policies allow you to pay for premiums out of the cash value of the account. The more your cash value increases, the less you will have to pay into it out of your pocket, thus reducing the cost of your life insurance. It also serves as an investment account that you can withdraw from if necessary.
The risks for universal variable life insurance are similar to the risks of other universal life insurance policies. The risk is that the investments of your cash value may sustain losses. This could result in you having to send in even more money for payments to offset the losses. This can result in you losing money to additional premiums instead of saving it.
Purchasing a Policy
If you feel like a variable universal life insurance policy is right for you, meet with a qualified insurance agent who can help you navigate all the policy options and pick which one is best for you.
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