What are variable and variable universal life policies?
Variable Life Insurance Policy
Life Insurance as an Investment
Variable insurance policies offer a number of professionally managed investment options in addition to the usual death benefits. Thus, whatever money accumulates in the investment account run by the insurance company can be used to invest in stocks, bonds and mutual funds. When the economy is doing well, this investment can produce strong growth. But, investments may also fall and the policyholder must accept the risk that, when the economy performs badly, the value of the policy may also fall. Indeed, there may be terms in the policy which require the insured to increase the premium if the overall value of the policy is to be maintained. This emphasizes the need to read the terms of the policy carefully before buying. Some insurance companies guarantee a minimum amount of death benefits. Others do not.
As with whole life and universal policies, there is a cash value that may be borrowed or taken in full if the policy is surrendered. Should one or more loans be taken, it is important to remember that any amount not repaid before death will be deducted from the amount payable on death. This could leave family and relatives short of money to pay off outstanding debts.
Variable Universal Life Insurance Policy
Variable universal insurance policies allow the policyholder the potential investment rewards with the ability to change the amounts paid towards the death benefits and the investment opportunities. This type of policy suits someone who likes to take control of their own financial affairs. Note that, because the insured assumes almost all the risk in making investment decisions, regulations made under the Federal Securities laws are in force and enforced by the SEC. This requires the policy to be sold with a prospectus setting out the risks in clear terms. Over time, the stock markets have provided steady returns but, if a recession hits, the capital value of investments may fall sharply and dividends may dry up. It can take years before lost value is recovered. Thus, this type of policy will only appeal to those who are comfortable with a long-term investment profile.
Because of the higher premiums and the increased levels of risk involved, it is particularly important to shop around to find the best policies. Using the search engine on this site gives you multiple life insurance quotes. Then it is time to read through the terms of the policies and any prospectus offered to see exactly what is on offer and whether it represents good value for your needs.