Variable Universal Life Insurance

Variable Universal Life Insurance (VUL) is a highly flexible type of life insurance product which offers the policy holder a high degree of choice. Flexible premiums, fixed or variable face amounts, choice of investments and available cash loans against the policy are some of the flexibilities which a VUL offers.

Subject to enough premiums being paid in to keep the policy from expiring, a VUL allows you to vary the frequency and amount of premiums actually paid in, and by inference, the actual value of your death benefit. So, for example, if you need a big value life insurance to fulfill mortgage requirements, you can opt to lower the face value and allow the cash value to grow rapidly as the balance on your mortgage goes down.

A VUL is especially beneficial under certain circumstances. If health problems or other requirements disqualify you from being able to purchase term life, VUL is a viable secondary option. If you have already made the maximum allowed contributions to retirement plans including your 401(k) and an IRA, a variable life policy offers a valid tax shelter for your earnings and an additional route for making tax deferred investments.

You can withdraw funds up to cost basis as long as the policy remains in force. It is to be noted that early withdrawals before age 59½ are still charged with a 10% penalty by the IRS.

Each insurance company tailors the product, and associated charges and rates, as per their own requirements. Things you need to make note of include the annual mortality and expense charges, monthly administrative and insurance costs and the early surrender penalties in addition to that imposed by the IRS, if any. Upon withdrawal, earnings are taxable and the fees associated with withdrawals are generally high in the early years, and taper off as time goes by.

You are usually assured a minimum guaranteed rate of return by the insurance company, with the actual status of your cash value depending on the performance of the investments. VUL policy premiums are generally lower than term life, since returns are based on investment performance. Depending on the success of the invested funds, the cost of a VUL can be much less, and the final benefits much more, than a comparable term life policy. Please note that each company sets its own rules regarding the choice of investments and annual and other fees and costs. You are advised to consult your financial planner or insurance agent, as also to study all the options, do comparisons of similar products from different insurance companies and do your own research.