There are numerous types of life insurance. They can be challenging to understand, making determining which type is best for you a struggle. Variable universal life insurance is one of the options available to you.

What is variable universal life insurance, and how does it work?

Variable universal life insurance is a policy that covers you for the rest of your life as long as you keep paying the premiums.

It has a variable death benefit and a variety of investment alternatives, with a portion of your premium set away (known as cash value) to be invested in a variety of the company’s options.

These alternatives include equities, bonds, and money market portfolios, all of which have tax-deferred growth. Another advantage is that you can use the cash value for personal purposes, such as purchasing a property, by withdrawing or taking out a loan.

Variable universal life insurance does not have fixed rates, which means the amount you pay never varies. This will come in handy if you ever need to cut back on your expenditures. According to David Pierce, assistant professor of insurance at the American College of Financial Services, the death benefit is also flexible.

Universal versus variable universal

Despite their similar names, variable universal life insurance and universal life insurance are not the same. The main distinction is as follows:

•        Variable universal life insurance: Your cash value is invested in a portfolio that swings in response to market performance.

•        Universal life insurance: Your policy’s cash value rises at a rate determined by your insurer, which is usually in line with current money market rates.

Unlike other universal life insurance policies, variable universal life insurance policies do not promise you a specific return. Because earnings are contingent on markets, which have no assured return, a variable policy puts you in danger of losing money. On the other hand, you may generate greater cash value than with rate-capped universal insurance. 

In other words, the higher the risk, the higher the (possible) profit.

Generally, a variable universal insurance policy costs more than a term coverage because it lasts a lifetime.

Getting an online estimate from the insurer or a quote comparison site is the easiest approach to figuring out how many variables universal insurance will cost.

Is universal life insurance a good fit for you?

Variable policies are riskier than other types of life insurance, so they may not be the best option for everyone. However, they could be a helpful financial tool for individuals ready to accept the risk or acquire a rider to preserve their coverage. 

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Kathy Hollingsworth
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