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Variable Universal Life Insurance An Introduction Tutorial

If you are shopping around for different life insurance options, you will come across one called variable universal life insurance (VUL). This insurance vehicle offers an option to invest the cash value of your policy. This article helps you save money with this life insurance policy, and to help you become aware of the inherent risks involved.


Building cash value

Be sure you understand that unlike term insurance, a VUL builds cash value because part of what you pay in your premium gets put into a separate investment account. This means whomever is selling this insurance and investment hybrid product also receives a commission for the sale. Know what you are getting into before you sign anything. This article will help you have that knowledge advantage.

Because of the volatility in nature of these type of accounts, the SEC has placed many restrictions on the management of the cash portion and oversees them to ensure your protection and that nothing is hidden from you. However, the decision and inherent risks involved are yours alone to bare. For all intents and purposes, the cash that you invest into this VUL account acts in the same manner as a mutual fund. You will typically have ten to twenty choices to invest the cash in. How do you choose the best one for you? Here are some guidelines to help straighten out your learning curve:


4 Variable Universal Life Insurance Guidelines

    1. What are your financial goals? As with any investment, be sure to match up your choices with the financial goals you set for your family. Are you more conservative, aggressive, or somewhere in between when it comes to risk tolerance?

    • If you understand the financial market and can handle a higher risk in exchange for the potential for higher returns, then you are aggressive and will select these types of investments in your VUL.

    • However, if you are not much of a risk taker and prefer to earn lower but more predictable returns, then choosing a more conservative investment approach is right for you.

    2. Recognize your limitations. Whomever is the sponsor of the VUL is the one who limits the investment choices. Be sure you carefully shop around for options that make sense for you as companies differ in their investment offerings.

    3. Diversify. As with any investments, diversification is the door to safety. On the other side, many variable universal life insurance policies charge a separate fee for each investment vehicle. Again, due diligence is needed along with the counsel of a financial-coaching.html financial coach or fee only financial planner who will gain nothing from the choice you make. There is safety in the multitude of counselors.

    4. Consider the fees. Here is the kicker on VULs. They cost up to triple the amount of premiums then term life insurance policies. Why? Because a VUL builds cash value

    in addition to a death pay-out whereas term only covers death. Be sure that you fully understand how, when, and the amount of fees that will be charged. Remember that you are buying two things with this one variable universal life policy: the death pay-out and an investment.

As with any investments in insurance, you have options. Be sure the fully understand your variable universal life insurance policy before purchasing. Only purchase and invest if it is a good fit with your financial goals and emotional temperament --- and, of course, fits within your household budgeting plan.

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