Is variable universal life insurance really worth it?

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  • Although, variable universal life insurance is considered by many to be permanent life insurance, because it will stay in force as long as there is enough cash value to cover the premiums, the cost of the life insurance in the plan goes up as a person’s age goes up. It is a good idea to shop around for the best rates before making a final purchase.
  • The owner invests the cash value account in the contract. Most contracts have a variety of funds the money can be invested in. These are similar to mutual funds. These will consist of stock accounts, bond accounts, etc.… The variable aspect of the account means that there is no guarantee of cash account returns.
  • The death benefit will be paid, if the insured dies, as long as there is enough cash value to pay the insurance costs and keep the policy in-force.

Variable Universal Life Insurance

The question of “whether variable universal life insurance is worth it,” is a difficult question to answer in a general way. It really depends on why the insured person is purchasing the insurance and how much investment experience they have. A variable Universal Life Insurance contract is one, which has two parts. It has the life insurance side and the investment side. The contract owner is responsible for investing the cash portion of the account in a manner, which earns a steady return. The insurance company does not guarantee returns to the cash accounts. However, the returns are tax-free as long as they are a part of the insurance contract and the policy is still in-force. Start comparing life insurance now by using our FREE tool above!

Reasons to Own Variable Universal Life Insurance

  1. Needs based ownership: While a person is working and supporting a family, they may purchase a life insurance contract to cover several years of their income. If they die prematurely, their beneficiaries will receive the proceeds to live on for several years. A variable universal life contract’s death benefit could be much higher than when the contract was purchased.
  2. Wealthy people can use variable universal life contracts to gift money to their children. This allows a tax deferral of the gift provides a life insurance benefit and will typically allow for tax-free borrowing against the cash value in the contract.
  3. Some people use VUL contracts to pay for expected estate taxes that will be incurred on property owned at the time of their death. This may be years down the road, so if the investment account makes money, the policy will eventually pay for itself.

Benefits of VUL Insurance

Premiums on these contracts do not have to be paid forever, if the cash value in the contract is enough to cover the cost of insurance. Many people will pay the premiums while they are working, and in later years as the cost of insurance increases, they can use the cash value to reduce or sometimes completely pay the premium. If the insured cannot pay the premium for a period of time, the policy may have enough cash value to remain

If the insured cannot pay the premium for a period of time, the policy may have enough cash value to remain in-force anyway.

VUL policies are a bit more complicated to understand, but for those people who are confident investing the separate cash account, it can be the best way to own life insurance for the rest of their lives. It gives the owner the most flexibility as far as death benefit and premium.

Cons of Owning VUL Insurance

As mentioned earlier, the cost of insurance on these policies works like a term life insurance contract. As you age, your cost of life insurance on the contract will increase. Term insurance rates can get extremely expensive in later years of life. Comparing rates on a number of different policies before you make a final purchase is a good idea. If you have managed the variable (investment) side of your contract well, this increase in cost of insurance should not be a problem. However, if you have not managed it well and your cash account cannot cover the higher premiums, you will eventually have no cash value and unless you can pay the higher cost of insurance, you will end up with no insurance either.

When trying to decide on whether a VUL contract is right for you, think about your long-term needs. Will you need to protect an estate late in life, to pass on to the next generation? If the answer is yes, then this contract may be the best one for your situation. It will stay in force until your death, and with good investment returns, it should eventually be able to pay for itself.

If you are just interested in paying off your mortgage, in the event of your premature death, a plain term insurance policy might be all you need.

If you are insuring your income for a number of years while you have young children, term or whole life may be best. In addition, if you do not feel comfortable investing the cash account, there may be other types of life insurance you should consider.

However, if you want the ability to invest the cash account, in order to potentially pay the premiums with it later; this is the policy to consider. Just remember that shopping around a bit and comparing policies will help you have success long-term with your contract. Start comparing life insurance rates now by entering your zip code in our FREE tool below!

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