The policyholder is charged a surrender fee for canceling the policy before that time has passed. Variable universal life policies typically include what's called a "surrender period." While the length of the surrender period varies by carrier, it can be as long as 15 years.
Plus, borrowing from the cash value may leave too little in reserve to cover the premium if the policyholder runs into trouble and cannot make the monthly payments. However, it can take years to build up enough cash value to borrow. Once enough cash has accumulated, it is possible to borrow money via the policy. On the other hand, when stock values are down in a bear market, the policyholder risks losing value. In a bull market, when the economy is strong and stock values are on the rise, a variable universal life insurance policy is likely to generate a strong return. Unlike term life insurance, a variable universal policy provides coverage for the policyholder's entire life, as long as premium payments are current.
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While some types of insurance are fully managed by a financial professional hired by the insurance company, the policyholder can determine where the money in a VUL should go, choosing investment options based on their preferred level of risk. VUL insurance policies accumulate cash value. The policyholder decides where the cash goes This cash value grows tax-deferred, meaning the policyholder does not owe taxes until they take withdrawals. Accumulates cash valueĪ variable universal life insurance policy accumulates cash value that can grow over time - depending on the performance of the investment options it is tied to. Policyholders can alter the amounts they pay as long as there is enough cash value in the account to cover policy expenses. Other years, they may run into an emergency or unexpected expense and need to pay less. Some years, the policyholder may want to pay more than their policy requires in order to build more equity. Unlike with some types of coverage, a policyholder can adjust the amount of the premium instead of paying the same amount each year. At first glance, it looks a lot like any other permanent life insurance policy, but there are unique features that set it apart.
Variable universal life insurance is a bit of a unicorn. How does variable universal life (VUL) insurance work? A variable universal life policy offers lifelong coverage, as long as the premium is paid. What is variable universal life (VUL) insurance?Ī variable universal life (VUL) policy is a type of permanent life insurance that includes policy cash value, variable investment options, flexible premiums, and a flexible death benefit that can be used in more than one way. Here we'll look at what makes a VUL policy a unique life insurance product, and see how it differs from other types of permanent insurance. For example, variable universal life insurance provides a death benefit and includes an investment option, while another might offer the death benefit only. Shopping for life insurance seems straightforward, but buying the right policy means knowing what each type of coverage offers.
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