Variable Life Insurance vs. Variable Universal Life Insurance: An OverviewVariable life insurance products allow a portion of your premium to be allocated to the insurance company's investment fund, allowing your beneficiaries to receive tax-free increased benefits if the fund grows. Show
Variable universal life insurance products feature the same investment opportunity with some extra features. These whole-life policies allow you to invest the cash value and provide flexible premiums and a flexible death benefit. Key Takeaways
Investopedia / Sabrina Jiang Variable Life InsuranceIn a variable life insurance policy, the bulk of the premium is invested in one or more separate investment accounts, with the opportunity to select from a wide range of investment options. You can choose from fixed-income, stocks, mutual funds, bonds, and money market funds. Additionally, the interest earned on the accounts increases with the account's cash value. Risk tolerance and investment objectives determine the amount of risk to be undertaken. Typically, insurers have professional investment managers supervising the investments. As a result, you'll be charged management fees. Therefore, the overall asset performance of the investment is generally the main topic of concern. Advantages and Disadvantages of Variable Life InsuranceAdvantages
Disadvantages
Advantages Explained
Disadvantages Explained
Variable Universal Life (VUL) InsuranceVariable universal life (VUL) insurance, as the name suggests, is a policy that combines variable and universal life insurance (i.e., flexible variable life insurance). This is one of the more popular insurance policies because it gives you the option to invest and alter the insurance coverage with ease. Similar to universal life insurance, you can decide the amount and frequency of premium payments within specific limits. You may also make a lump sum payment within certain limits or use your accrued cash value toward premium payments. Advantages and Disadvantages of Variable Universal LifeAdvantages
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Advantages Explained
Disadvantages Explained
Insurance companies do not guarantee rates of return for investment funds. Which Is Right for You?The two life insurance products are very similar, so it might be difficult to choose which one is right for you. The key to both of these products is that they have variable death benefits, which makes them attractive to people who believe the market will produce favorable results. To choose between the two, answer these questions:
It's important to note that both of these policies require taking on investment risk in your life insurance. Depending on market conditions, your beneficiaries may get more, or they may get less. Frequently Asked QuestionsWhat Is a Variable Life Insurance Policy?A variable life insurance policy allows you to use investments to fund your life insurance. The possibility for higher death benefits exists if the markets cooperate, but if they don't, the benefit could be significantly reduced. Who Is Variable Life Insurance Best For?Variable life insurance is best for someone comfortable with investing risks and a variable death benefit. What are the Benefits of Variable Life Insurance?Variable life insurance lets you choose how you invest for your life insurance, and allows the policy's cash value to grow. What Are the Disadvantages of Variable Life Insurance?Variable life insurance comes with inherited risks of the investments within the fund. You have the freedom to choose the assets you want, but if they do not perform, your returns, and thus your benefit, could be significantly reduced. The Bottom LineYour life insurance coverage needs may change over time, and variable life insurance products do an excellent job of factoring in these potential changes. As a result, variable life and VUL policies can create a hedge against inflation if they outpace it. For some, controlling investments through variable life offers a desirable edge, while others may prefer VUL for its higher flexibility. What is variable whole life insurance based on?Variable life insurance includes a cash value component whose value changes based on: Amount of premiums paid. Fees and expenses charged by the insurance company. Performance of the investments (often similar to mutual funds) tied to the policy.
What type of premium is variable whole life insurance?Variable Life Insurance Advantages
Premiums are not fixed, as with traditional whole life insurance or term insurance policies. Within limits, policyholders may adjust their premium payments based on their needs and investment goals. Loan interest may become taxable upon surrender of the policy.
Does variable whole life have a level premium?Variable Whole Life Insurance includes:
Premiums are level and invested in the general account of the insurance company. Cash value earnings grow tax-deferred although not guaranteed.
What is life insurance premium based on?Life insurance is based on the sharing of the risk of death by a large group of people. The amount at risk must be known to predict the cost to each member of the group. Mortality tables are used to give the company a basic estimate of how much money it will need to pay for death claims each year.
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