With the changing insurance needs of the people, life insurance policies have evolved significantly. Today, insurance companies offer a variety of plans to suit customer-specific needs. While term insurance policies have remained a popular choice, several new policies like the variable universal life insurance are fast gaining popularity.
What is variable universal life insurance?
Variable universal life insurance or VUL is a type of permanent life insurance plan that offers dual benefits of life protection for, as long as you live, and investment opportunities. This means VUL has a cash-value component.
VUL works similar to universal life insurance or whole life insurance, except there is one significant difference. In a UL, you get a specific credit rating on the cash value component, whereas VUL gives you the flexibility to put some or all the cash value you have in your policy into a variable account comprising investment funds.
In terms of the cash-value component, you have a certain degree of control over where you want to invest to maximise the earning potential based on the market movement and the risk associated with it.
Who should buy a variable universal life insurance policy?
Before buying a universal variable life insurance policy, you must assess your insurance needs. Since VUL involves market investment, there is a risk associated with it. If you are looking for a low-risk or zero risk insurance option, you must explore other options.
However, if you are willing to take the risk and feel comfortable with proactively managing the investments, VUL could be the right choice. Also, VUL can be beneficial for you if you purchase the policy early in your life, as it gives you a better opportunity to allow your money to grow and accomplish your long-term goals.
Benefits of buying variable universal life insurance policy
- One of the significant benefits of buying VUL is that it gives you the flexibility to choose the premium payment mode as per your financial condition and convenience. For example, you can select regular premium pay mode or opt for a one-time single premium payment mode.
- The returns potential from VUL is much higher than the average returns offered by other permanent life insurance plans.
- The VUL gives you a certain level of control over your cash value investments.
- You can allocate the funds in different investment options based on your expected returns rate, risk-taking capacity, and goals.
- You get life protection until you live, provided you pay the premium on time throughout the tenure.
Does VUL have any drawbacks?
Since the cash value is market-linked, there is a high-risk reward potential. If the market is performing well, you may get high cash-value growth, but your cash value may decrease if the market is not performing well.
VUL can be a complex form of life insurance compared to a term life insurance policy, and it can be difficult for people, especially first-time buyers, to understand it is working.
If you surrender your policy before 15 years from the date of purchase, you may have to pay surrender charges. The charges can be high, especially during the initial years of the policy term.
While comparing different life insurance policies, it is paramount that you know your insurance goals. You can consider buying VUL if you want to protect your loved ones’ future, while simultaneously getting valuable returns on your investment.