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In the name, “variable” refers to the policyholder's ability to invest the accumulated cash value in a number of accounts. Like all permanent life insurance, variable universal life insurance builds cash value. The policyholder can choose among a wide variety of accounts in which to invest the cash value. “Universal” refers to the policyholder's flexibility when it comes to making insurance payments. Of course, this flexibility is often based on the policy's current accumulated cash value. In any event, variably universal life insurance differs from whole life insurance here because whole life insurance policies have a fixed premium. No flexibility.
There are a few ways in which a person can use a variable universal life insurance policy. First, and most obvious, is as a life insurance policy. The policyholder's beneficiaries will receive death benefits upon the death of the policyholder. Too, a variable universal life insurance policy can be used as an investment tool. The policy's cash value earns tax-deferred interest, which generically means the policyholder can save and save and save without having his or her savings taxed.
Another way to use a variable universal life insurance policy is to protect money from being taxed, and not just the money you're investing. This option is used mostly by wealthy individuals who want to avoid the estate tax. These people will give large sums of money to their children, who have their own variable universal life insurance plans, and the money is covered under a gift tax exemption.
Aside from financial protection and tax advantages, variable universal life insurance policies are also beneficial for educational, retirement, and estate planning and saving. With so many options, variable universal life insurance is beneficial to all age groups.
A variable universal life insurance policy is a form of whole life insurance. With a variable universal life insurance policy, not only are you offered flat-out life insurance, but you are also offered more security and investment components that are not offered with other kinds of life insurance policies.
The difference between a variable universal life insurance policy and any other kind of life insurance policy is that not only does variable universal life insurance offer a cash value element, it offers more flexibility and control over that cash value element than any other type of insurance.
A variable life insurance policy will insure you for life, and any cash accumulated with a variable universal life insurance policy is tax-deferred. This means you will not have to pay taxes on the money you earn.
Admittedly, there are investment risks that come with variable universal life insurance policies. If your investments are very successful, the person whom you have named as your beneficiary will be paid a fairly high death benefit. However, even if your account's investments are unsuccessful, the person whom you have named your beneficiary will still be paid a minimum death benefit in the event of your death. Even more good news?
Variable universal life insurance policies are regulated by Federal Securities Laws, so you can purchase them with confidence. They even have to be sold with informative brochures so you know exactly what you are getting.
With all the different life insurance policies out there, not to mention and the pros and cons of each, your safest bet is to talk with a life insurance agent before committing to one particular life insurance policy. Express your needs and the amount you are willing to spend. Be sure to shop around, as well. Get quotes from several different life insurance agents and find out if your needs are covered before choosing the one that is right for you.