Unlike other types of universal life insurance, variable universal life insurance allows policyholders to put in their policies’ cash value in diverse accounts, such as stocks, bonds and commodities, as with mutual funds. Policy owners can put all their money in a single account or put their cash separately in different accounts to make the most ROI.
Like choosing every life protection, you must be well-informed before you take out variable universal life insurance. This will help you determine if it is the right option for your circumstances. This means you have to know its pros and cons.
List of Pros of Variable Universal Life Insurance
1. It is flexible.
Variable universal security has flexible payment with a minimum and maximum payment, which is different from whole-life and level-term, which both have stable payments. A fraction of its payment will be a disbursement for the policy, and the remaining balance will be abstracted to investment accounts, which develops the policy’s cash value. If you disburse higher payments, the cash worth and the investment also grow more quickly. If the insured is not capable to make payment, this policy allows the disbursement to be done by withdrawing the payment from the value of cash, not to make the coverage lapse, and instead, make it to remain standing.
2. It has an advantage when it comes to tax.
The returns obtained in the cash value of variable universal life insurance are tax deferred before withdrawal. By using such value for no-interest mortgages, you can avoid paying taxes. However, you have to take note that when the mortgage equals the amount of the cash value, the coverage would lapse and your income tax would appear due in lump sums, which might be essential.
List of Cons of Variable Universal Life Insurance
1. It brings about a riskier investment.
Except for the fact that variable universal life insurance has least assured percentage of return, you (as the insured) can lose your investment because the monetary instrument used to make profit would also be lost. Even though a complete life policy assures a safe and inexpensive return, the ROI on this policy can be as low as 2%. If you subtract the expenses related with the account, your ROI might be worthless for a whole year.
2. It poses higher costs.
Take note that other types of life coverage, such as term life insurance, have no cash value and offer cheap premium rates, which are lower than those of variable universal life insurance.
However, it is still worth noting that the latter is more affordable than other forms of permanent coverage. It combines an insurance policy with an investment vehicle, and its price reflects the dual nature of the policy. So, if you are looking for a good means to grow a financial asset or build a nest egg for retirement, universal life may be your best option.
It is very important for you to weigh down the pros and cons of variable universal life insurance policy before applying for it. As a result, you can avoid regret in due course.