When it comes to life insurance, there are several different types of policies available to suit varying needs and preferences. Two popular options are variable life insurance and variable universal life insurance. These policies offer flexibility and investment opportunities, but also come with some risks to consider.
About variable universal life policies
What is Variable Life Insurance?
Variable life insurance is a type of permanent life insurance that offers both a death benefit and a cash value component. The policyholder pays premiums, which are invested in a separate account chosen by the policyholder from a variety of options offered by the insurance company. The cash value of the policy can then fluctuate based on the performance of the investments in the separate account.
What is Variable Universal Life Insurance?
Variable universal life insurance is similar to variable life insurance in that it offers both a death benefit and a cash value component. However, the key difference is that policyholders have more flexibility in terms of premium payments and death benefit amounts. They can also choose how the premiums are invested in the separate account.
Advantages and Risks of Variable Life Insurance and Variable Universal Life Insurance
Advantages
One of the primary advantages of variable life insurance and variable universal life insurance is the potential for higher returns on investment than traditional whole life insurance policies. This is because the cash value of the policy is invested in separate accounts that offer greater potential for growth.
Another advantage is the flexibility offered by these policies. Policyholders can choose how their premiums are invested and can adjust the death benefit amount over time. This can make the policies more appealing to those who anticipate changes in their financial situation over the years.
Risks
There are also risks to consider when it comes to variable life insurance and variable universal life insurance. Because the cash value of the policy is invested in separate accounts, there is the potential for loss of value if the investments perform poorly. Additionally, policyholders may be required to pay higher premiums if the investments underperform or if mortality and expense charges increase.
Conclusion
Variable life insurance and variable universal life insurance can be good options for those looking for flexible policies with investment opportunities. However, it’s important to carefully consider the risks involved and to work with a financial advisor to determine if these policies are the right fit for your needs and goals.