It is obligatory to read the prospectus carefully before investing in a variable life insurance policy. Adjustable life insurance and universal life insurance are the same type of life insurance policy. But the difference in premiums for permanent life insurance versus term life insurance is always substantial. For some, control over investments through variable life offers a desired edge, while others may prefer VUL for its high level of flexibility and the policyholder's openmindedness toward market fluctuations. She earned her JD at UCLA and graduated from the University of Rochester with a degree in media and communications. Therefore, the overall asset performance of the investment is generally the main topic of concern. In a variable life insurance policy, the bulk of the premium is invested in one or more separate investment accounts, with the opportunity to select from a wide range of investment options—fixed-income, stocks, mutual funds, bonds, and money market funds. Like variable insurance, due to their inherent securities risk, VUL policies must be sold with a prospectus and are governed by securities laws. If the investments in your sub-accounts perform well, your policy could become worth much more than whole life or universal life policies. And most policies offer a guaranteed minimum interest rate, so you never need to worry your money won’t grow as much as you planned, even if interest rates fall. Variable Universal Life does not offer guarantees. But they aren’t the same. For investors that love to watch the market, variable life insurance products are interesting. Or, you can opt for a universal life policy if you want guaranteed returns while still getting more flexibility than a whole life policy provides. The primary difference: Term life ⦠Three of the most common are whole life insurance, universal life insurance, and guaranteed universal life insurance. Universal and variable life insurance policies, like whole life, combine life insurance protection with the opportunity to build cash value on a tax-favored basis. Learn vocabulary, terms, and more with flashcards, games, and other study tools. These products allow for a portion of the premium to be allocated to the insurance company's investment fund, allowing tax-free profits to be generated for beneficiaries. You don’t need to decide what to invest in, and the policy will provide a guaranteed cash value account that grows based on the insurer’s formula, regardless of market performance. While the interest rate that is paid can change as prevailing interest rates increase or decrease, it is usually fixed for 1 year periods. There are different kinds of whole life coverage, including ordinary whole life coverage that has level premiums while you are alive and limited whole life insurance that covers you for life but allows you to pay premiums only for a designated time. Variable Universal Life Insurance Variable universal life insurance blends the features of universal and variable life insurance by allowing you to invest in bonds, money market mutual funds, or stocks, and enabling you to ⦠However, if the investments perform poorly, less money will be accessible from the cash value, and more money will have to be paid in order to keep the policy in force. If you want a simple insurance policy to protect your family, a term life insurance policy is the cheapest and easiest way to get covered. Universal life, such as indexed universal life (IUL) and variable universal life (VUL), is a form of permanent life insurance, also known as cash value life insurance. You may also make a lump sum payment within certain limits, or use your accrued cash value toward premium payments. Guaranteed issue life insurance is a small whole life insurance policy with no medical questions or exam. They make investing easy because you pay your life insurance premiums and your money grows. As with universal life insurance, a policyholder has the ability to decide the amount and the frequency of premium payment, although within specific limits. Alternatively, a variable universal life insurance policy offers investment options and the flexible death benefits. The similarities between the two basically stop there, as we begin to see unique features within their intricacies. Christy Rakoczy is an experienced personal finance and legal writer who has been writing full time since 2008. It might also suit wealthy individuals with complex financial needs, such as estate planning. Adjustable life insurance is the name given to older universal life insurance policies. This is what the average American pays each month for a $250,000 whole life policy, depending on their gender and the age that they enrolled: A variable life policy is quite risky because the cash value and death benefits can fluctuate in accordance with the performance of the investment portfolio. The variable death benefit is equal to the cash value at the time of death, plus the face value of the insurance. The investment options vary among insurers, but almost all VUL policies consist of investment in stocks, bonds, money market securities, mutual funds, and even the most conservative option of guaranteed fixed interest. Both are governed by securities law and require a prospectus. It differs from whole life insurance because you are in the driverâs seat when it comes to choosing your death benefit, saving options, and even premium ⦠Although there are some advantages to investing through a permanent life insurance policy, there are also downsides, including the fact that these policies can have high fees. This can help your family pay off a mortgage, keep paying the bills once you’re no longer there to earn income, or pay for things such as a college education for your kids. Variable Universal Life vs. Many or all of the companies featured provide compensation to LendEDU. Here’s what you need to know about each policy. Compare affordable quotes from 12+ A-rated life insurance companies side-by-side. If the fund performance exceeds or declines beyond this assumed rate of interest, the death benefit will go up or down accordingly. These commissions are how we maintain our free service for consumers. Compensation, along with hours of in-depth editorial research, determines where & how companies appear on our site. If you want the simplicity of getting insurance and an investment product all in one, a permanent life policy would be the better choice. Whole life insurance is much more expensive than term life insurance, and variable life insurance can be more costly than whole life coverage. Variable universal life insurance is an option that combines aspects of universal and variable life insurance â it has flexible premium payments and adjustable death benefits (like universal life insurance) while also offering a wider range of investment options in stock and bond funds (like variable life insurance). A term life policy also doesn’t help you invest for the future—but you can set up an investment account on your own and potentially earn better returns than if you invest in permanent life insurance. A variable life insurance allows most of the premiums to be invested in an investment account. The policy could be variable whole life, universal whole life, or some other type altogether. However, some insurers cap the potential amount of growth. And the chance to take advantage of growth when the market is strong. A variable universal life insurance policy combines the benefits of a variable policy with a universalâor whole lifeâpolicy. When evaluating offers, you should review the Terms and Conditions of the product and/or company. All products and services are presented without warranty. Unlike universal life insurance, this policy offers the freedom to invest in a preferred investment portfolio. Variable universal life insurance policies have the cash value structure of variable life insurance, but you can use the cash value to pay premiums. Universal life offers more flexibility Universal life insurance is unique in that it gives policyholders flexibility with premium payments ⦠Universal life insurance, much like whole life, is coverage that is considered permanent in nature. It adds flexibility to the traditional definition of permanent life insurance. Protect your loved ones. That’s because, with a variable life policy, the money that has accrued in your policy is invested in different “sub-accounts.” These sub-accounts are similar to mutual funds but can only be purchased within the policy. Whole Life. Meanwhile, because it is a permanent life policy, VUL provides tax-deferred cash value and loan withdrawals, within certain limits, against the cash value. Address: 80 River St., STE #3C-2, Hoboken, NJ, While the higher premium payments for a permanent life insurance policy are partly explained by the fact that a portion of the premiums goes towards investing, some financial experts believe permanent life insurance costs more than it’s worth because of management fees and other costs insurers add. A whole life insurance policy is a broad definition. Universal life is similar to a whole life policy but offers flexibility in relation to the savings component of whole life. Universal Life. Variable universal life (VUL) insurance, as the name suggests, is a policy that combines variable and universal life insurance (i.e., flexible variable life insurance). The insurance carrier will set aside part of the premiums for investment. There are different kinds of these permanent life insurance policies, including whole life insurance, variable life insurance, and universal life insurance. While permanent life insurance policies are investment products as well as insurance products, there are some important differences between the kinds of permanent policies. However, variable policies work differently because you can invest in sub-accounts similar to mutual funds, while a universal policy earns money by accruing interest. Find coverage at a price your are comfortable with. An increase in the death benefit calls for evidence that of good health, while a decrease in the death benefit may have surrender charges. But this policy will only cover you for a designated time, and it could be very expensive to buy continuing coverage when you’re older and the policy term expires. Whole life policies allow you to build up a cash value to access during your life, but your beneficiaries only receive the death benefit, so you’ll need to access the invested funds during your life if you don’t want to lose them. Variable universal life (VUL) insurance is a permanent life insurance policy with a savings component in which cash value can be invested. The difference between variable universal life and other types of universal life is essentially the ability to choose investment options and the potential for cash value growth along with increased risk. A whole life insurance policy can be described as providing life insurance protection with an accumulation feature, and might be a good choice if you want a policy with: Start studying Life Chart : Adjustable Life vs Universal Life vs Variable Life. But there’s a big difference. With a VUL policy, your premium payments cover the cost of life insurance, the selling agentâs commissions, and the insurance companyâs costs and margin. Though they can vary quite a bit, whole life returns average about 2%. These types of permanent life insurance policies are designed to not only provide a lump sum death benefit for your beneficiaries, but also build up ⦠Ultimately, you’ll need to do your research carefully and consider all options to find the coverage that is right for you. Variable and universal life insurance are both permanent life insurance policies that pay a death benefit and accrue a cash value that can be used for investing. Cash value life insurance is permanent life insurance with a cash value savings component. Disclaimer: We try our best to keep the information on our site up to date and accurate. It is a good idea to shop around for the best rates before making a ⦠Life changes mean that insurance needs change too, where it’s important to re-evaluate your financial plan after major life events, such as marriage or a home purchase. A variable universal life insurance policy could be a good fit for someone with prior investment experience. Like with a universal life policy, your premiums are higher than the cost to insure you. Thus, there is a possibility that the underlying assets provide negative returns. In fact, if your investments perform poorly enough, your premiums might actually need to rise so you’ll have enough money to invest in your sub-accounts. These policies also charge higher premiums than the cost of insuring you; the extra money from the premiums is invested, it grows tax-free, and the policy acquires a cash value. Variable universal life offers long-term life insurance protection for your loved ones, and the opportunity to grow your wealth by investing in the markets. This site is compensated by third-party advertisers and is not endorsed or affiliated with the U.S. Department of Education. Normally, policy loans are tax-free, but you need to confirm this with your insurance advisor, as the tax implications may differ from one state to another. A life insurance policy pays a death benefit after you pass away. The funding of the death benefit will be done by applying an assumed rate of interest, usually around 4%. Life insurance protection for those who matter most. This information may be different than what you see on the websites of the companies we mention. The policyholder can be a conservative or aggressive investor. While universal life policies allow you to change the death benefit, variable life insurance policies do not. When the savings component of the insurance policy is separated from the death benefit, the risk is transferred to the policy holder. If you have loved ones depending upon you, it can be a good idea to purchase life insurance. Variable universal life insurance offers the potential to build cash value based on the performance of the investment options you choose.. Itâs helpful to understand what whole life insurance is before diving into variable universal life, which is a more complex type of policy. However, universal life policies provide more flexibility than whole life policies because you can move your money around between the death benefit and the cash value. A variable life insurance policy does offer a guaranteed death benefit, which will not fall below a minimum amount even if the invested assets devalue significantly. Variable Universal Life Cons Con #1 â More Risk / In the Market. In the insurance industry, an annual dividend is a yearly payment given by an insurance company to a policyholder. Because a variable life policy deals with security investment risks, it is considered a securities contract and is governed by prevailing securities law. Here is an article comparing a ⦠An individual’s insurance coverage needs may change over time, and variable life insurance products do a good job of factoring in these potential changes. Like whole life policies, universal life policies pay a death benefit upon your death and accrue a cash value you can access during your life. One is term life; the other is universal or variable life. Normally, insurers have their own professional investment managers supervising the investments. These policies were the first universal life insurance policies designed in the 1980s. One of the key risks of both types of policies is the fluctuation in cash value and death benefits due to the performance of investments. Risk tolerance and investment objectives determine the amount of risk to be undertaken. VUL policies allow the policyholder to increase and decrease the death benefit as they please. Therefore, if the underlying investments perform well, the death benefit and cash value may increase accordingly. Whole life insurance gives a policyholder lifetime coverage and a guaranteed amount to pass on to beneficiaries, so long as the contract is up to date at the time of the policyholder’s death. The information we present is for educational purposes only and you should consult a licensed financial professional before making any financial decisions. Therefore, these policies are sometimes referred to as flexible premium variable life insurance. A variable universal life insurance policy combines the benefits of a variable policy with a universal—or whole life—policy. Although, variable universal life insurance is considered by many to be permanent life insurance, because it will stay in force as long as there is enough cash value to cover the premiums, the cost of the life insurance in the plan goes up as a personâs age goes up. Brands, product names, logos, and other trademarks mentioned on LendEDU are the property of their respective trademark holders. Policies and annuities issued by American General Life Insurance Company (AGL), Houston, TX, except in New York, where issued by The United States Life Insurance Company in the City of New York (US Life). Whole life insurance is a policy that provides permanent, lifelong coverage for your family. Some life insurance products do more than just pay a death benefit—they can help you invest. Variable Life Insurance vs. Variable life insurance policies are permanent life insurance policies with a death benefit, just like universal and whole life policies. There are two options of death benefit: fixed death benefit and variable death benefit. Variable life insurance has a number of different investment options, ranging from stocks to mutual funds to bonds and more, and you choose several sub-accounts to grow your cash value. Variable Universal Life: The Good Taxation. There are many factors that go into the cost of life insurance, including your age and health status. 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