Insure Insight

📋What is Variable Universal Life Insurance?.

✅It is a type of Permanent Life Insurance policy with a savings component that allows for the investment of cash value.

How does it work?.

✅VUL combines a savings component with a death benefit which allows you greater flexibility in managing the policy. For VUL policies, the savings element consists of “sub-accounts” and each year the insurer will deduct what it needs to cover the mortality and administration costs and the rest goes to the sub-accounts to earn further interest.

What are the risks?.

✅In these kinds of policies the insurer separates the savings component and the death benefit component therefore transferring the risk of the policy to the insured compared to term policies which are only focused on the death benefit component of the policy. The insured must assume the likelihood that the separate account may generate negative returns, which will reduce the cash value. Significant and sustained losses compromise the cash value. As a result, the insured may need to remit higher premium payments to cover the cost of the insurance and rebuild the cash value, else the policy will lapse.

What are the sub-account structures?.

✅ The separate subaccount is structured like a family of mutual funds. Each has an array of stock and bond accounts, along with a money market option. Some policies restrict the number of transfers into and out of the funds. If a policyholder has exceeded the number of transfers in a year and the account in which funds are invested performs poorly, they may need to pay a higher premium to cover the cost of insurance. In addition to the standard administration and mortality fees paid by the policyholder each year, the subaccounts deduct management fees that can range from 0.05% to 2%.

What are the benefits to owning this type of insurance policy?.

✅ The growth of the VUL insurance policy’s cash value is tax-deferred
✅ Policyholders may access their cash value by taking a withdrawal or borrowing funds (note:) However, if the cash value falls below a specific level, additional premium payments must be made to prevent the policy from lapsing
✅ Owning a VUL allows you to have financial peace due to the death benefit coverage of the policy and also the opportunity to grow your money while you work and provide for your family.

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Reference: Investopedia.com “Guide to Life Insurance”

⚠️This is not financial advise, all content posted in this page are meant for educational purposes only. All financial products carry risks and are subject to certain terms and conditions.

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