Variable Universal Life Insurance

Variable universal life insurance is a type of permanent life insurance, or coverage that never expires so long as premiums are paid.

These financial products function as an investment and as insurance.

Policies combine the flexible premium payment options of universal life insurance with the investment choices of variable life insurance.

Variable universal life policies build a cash value that can be invested into subaccounts, similar to mutual funds. This gives you the potential for above-average cash value growth when compared to other life insurance options.

When you pay premiums to a variable universal life insurance policy, part of the money goes to the insurance company to cover fees and the death benefit.

The rest is invested into a sub-account of selected investments which grows your policy’s cash value.

You can borrow against or withdraw money from the cash value over time, or you can use it to cover future premium payments.

Keep in mind that unpaid loans and partial withdrawals may reduce your cash value, cause your policy to lapse or incur tax consequences.

How much money your beneficiaries receive when you pass away can vary, depending on how your policy is structured.

There are two main types of insurance payout options for variable universal life policies: Level death benefit and face amount plus cash value.

A level death benefit offers a fixed payout to your beneficiaries after you die. This dollar amount does not vary. You know exactly how much money they will receive.

However, any money left in your policy’s cash value returns to the insurance company after you die.

Face amount plus cash value is also referred to as a variable death benefit. While the face amount stays consistent, your beneficiaries also receive the policy’s cash value.

This option sets aside more money for your loved ones, but at the cost of higher premium payments.

Variable universal life insurance can be attractive for people interested in a hybrid insurance-investment option.

These policies include other key advantages, too.

Variable universal life insurance isn’t right for everyone. These policies cost more than other options, such as term life insurance, which only provides coverage for a specific number of years.

It’s important to understand potential risks before purchasing a policy.