Variable universal life insurance: Combination of 2 benefits

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A variable universal life insurance combines the benefits of a variable life insurance as well as universal life insurance policy. So, if your question is does a person have a life insurance policy that offers both benefits of a universal and variable life insurance then you can opt for variable universal life policy.

Advantages of variable universal life insurance

Variable universal life policies offer:
  • Premium as well as death benefit flexibility.
  • Tax-free investment earnings during the lifetime of the policy.
  • Potential increase in cash value depending on the performance of the kind of underlying funds that you have.
  • A crucial fencing against inflation depending on the performance of various securities market.
  • Permission to withdraw or borrow money from the policy during your life time.

Disadvantages of variable universal life insurance

  • VUL or variable universal life insurance is a more expensive type of policy compared to the other types.
  • VUL insurance premiums are more expensive compared to the other types.
  • You need to have a basic understanding of stocks, bonds and securities.
  • You will be the one to be responsible for managing any core investment accounts.
  • You may lose value since the success of such policies is dependent on the investments that you make.

Buying variable universal life insurance

Variable universal life insurance will be subject to market fluctuations. The returns on the invested cash values as well as the death benefits are not guaranteed. So you must be prepared for ups and downs when you have decided to buy this variable universal life insurance.

Now, you need to asses how much insurance you may need to secure the lives of your loved ones. Once you have done that, you can seek appointment with an experienced independent insurance agent. The agent will then explain the policy to you and offer different options from different companies. When you choose a policy, you must opt for a company that has high ratings from the major rating services like Standard & Poors, AM Best and the like.

Take a look at the investment goals of the funds that will be available and the respective management fees that is supposed to be deducted from your cash value.
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PostPosted: Mon Nov 23, 2009 12:15 pm   Post subject: Variable universal life insurance: Combination of 2 benefits  
Does a person have a life insurance policy that combines the benefits of both variable life insurance as well as universal life insurance?
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PostPosted: Tue Nov 24, 2009 5:12 am   Post subject:   
Not wanting to sound glib, but you're describing Variable Universal Life. Is that what you were getting at?

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PostPosted: Tue Nov 24, 2009 7:09 am   Post subject:   
I'd thank the site moderators for giving a proper title to my thread. But, do we really have life insurance policies that could be termed as variable universal life policies?
I was simply looking for a policy that offers flexible coverage with an investment option.
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PostPosted: Tue Nov 24, 2009 8:47 pm   Post subject:   
Yes...Variable Universal Life insurance offers the separate account investment feature with a flexible premium.

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PostPosted: Tue Nov 24, 2009 9:59 pm   Post subject:   
So you get a % return on your premiums?

How exactly does that work - do they just charge you more for the same level of cover?
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PostPosted: Wed Nov 25, 2009 12:25 am   Post subject:   
Not exactly, the policy is essentially a yearly renewable term product with an investment account tied to it. You'll pay a premium that covers fees and charges and the remainder goes into the investment account. You can put as much money as you want into the policy--of course you can turn the contract into a modified endowment contract if you put too much money in it.

The return you get is dependent on your investment account performance. As long as the cash component of the policy has a positive balance and the charges associated with the policy have been paid, the policy will remain in force.
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PostPosted: Wed Nov 25, 2009 9:58 am   Post subject:   
In a VUL insurance policy you'd have 2 death benefit options - variable and fixed. I guess the variable death benefit is worth a sum total of the cash value generated till death and the face amount.
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PostPosted: Thu Nov 26, 2009 7:10 am   Post subject:   
You could choose your own investment portfolio with vul policies. You'll not get this benefit with the universal life policies. You'll come across different investment options with different carriers but all of these policies would generally offer you investment options through stocks, securities, bonds and mutual funds. Under such circumstances, the death benefit and the cash value would depend on how your investment performs.
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PostPosted: Thu Nov 26, 2009 8:12 pm   Post subject:   
Never, ever, ever, ever buy a UL or VUL or EIUL policy without understanding what the cost of insurance will be every year. Also, don't sell one of these policies without understanding that also.

The COI won't be in the illustration and won't be in the prospectus.
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PostPosted: Fri Nov 27, 2009 6:39 am   Post subject:   
Quote:
Never, ever, ever, ever buy a UL or VUL or EIUL policy without understanding what the cost of insurance will be every year.

Do you recommend any website wherein I may study more about the different elements of insurance cost. Or do you want me to get a detailed explanation from the agents?
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PostPosted: Fri Nov 27, 2009 8:16 pm   Post subject:   
They keep the cost of insurance hidden. The agent can get this information for you. If they hesitate, get a new agent. Don't confuse "cost of insurance" with "premium".
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PostPosted: Sun Nov 29, 2009 6:05 am   Post subject:   
You can also search more about that topic. Cost Insurance can be given to you by your agent.
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PostPosted: Sun Nov 29, 2009 9:12 am   Post subject: Understanding VUL, UL, EIUL  
Contrary to the several statements that cost of insurance is not disclosed in VUL, UL, or EIUL contracts, it is. It must be by law. What you will find in EVERY type of "universal" contract is a Table of Guaranteed Cost of Insurance.

This is the MAXIMUM that the COI will ever be at any age. It will be listed as $$/$1,000 of death benefit (either per month or per year -- watch out for this, because if by month, it makes the cost look very low -- you have to multiply by 12 to get the true COI). The "current" cost of insurance can be obtained directly from the insurer (which is what some of the commenters mean when they write that the agent can get the information for you). It can also be deduced from the monthly, quarterly, or (required) annual statement.

But COI is only one component of the total cost of any "universal" life policy. In addition to this, there is a monthly Mortality & Expense (M&E) charge to support the "Guaranteed Death Benefit", a monthly administrative fee, a sales charge (can be nearly double what you'd pay for mutual fund "A" shares), fees for riders, plus the internal expenses in a VUL's subaccounts, and there's often a special assessment during the first 1-2 years (or more), that helps to offset the commission paid to the agent. All of these charges erode the monthly premium payment, to the point that very little might be going toward cash accumulation the separate account.

VUL polices have a "guaranteed death benefit" and a face amount of insurance. The face amount could be $500,000 while the guaranteed death benefit might be as little as $25,000. The "guaranteed death benefit" is only guaranteed (in most contracts) if ALL premium payments are made, on time and without fail. Miss one payment, and the guarantee could evaporate.

Like all other UL forms of insurance, VUL also has "death benefit options" (A & B, or A, B, & C =or= 1 & 2 / 1, 2, & 3) which correspond to Level and Increasing, or Level, Increasing, and Return of Premium [ROP]). "Level" is the least costly, ROP the most expensive. "Increasing" is usually 25% to 60% more costly than "Level".

Agents will prepare robust hypothetical illustrations that show cash accumulation into the millions of dollars over time, and fail to point out that the policy could lapse without value at any time there is insufficient cash value, together with premiums paid, to cover the cost of insurance, riders, and all other monthly fees.

All UL policies require active management by their owners to prevent the policy from lapsing. Understand that any UL policy can lapse even as premiums are being paid -- if the premium itself is insufficient.

Combine a declining stock market with VUL premiums calculated too low, due to that "robust" illustration, and you have a disaster waiting to happen. Unless more and more money is funneled into the policy. Not usually a wise choice.

If you don't have life insurancec, have never had life insurance, but like the potential of paying money for years only to end up with no insurance, no cash value, and a tax bill from the IRS, then VUL is the right product for you. But if there is one thing in that short list you don't like, then stay away from VUL.

There's nothing wrong with the product itself. The problem is that most agents don't understand it, they sell it because it pays huge commissions and they're often told to sell it, and they illustrate it to make it look like a rocket to the moon. The prospective insured who doesn't know or understand how it works would be better off with some other life insurance product.

Term life and separate savings program of any type is usually a better path to follow.

Send me your questions about any type of life insurance, and you'll get an answer you can understand.

And, please! Don't believe any agent who tells you that a policy will pay for itself after a certain number of years without you paying a premium. Only happens in whole life policies intended to be paid-up after a specified number of years -- RARELY, IF EVER, happens in UL, VUL, EIUL.
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PostPosted: Sun Nov 29, 2009 4:29 pm   Post subject:   
The COI is hidden. Is it in the illustration? No. Is it in the prospectus? No. Does the agent discuss the COI with the agent and what it will be every year? No.

The COI is in the contract. When does a client actually get this contract? They don't get it until after a policy has been applied for and approved by the insurance company.

One shouldn't apply for a UL policy without understanding the COI in advance.
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PostPosted: Mon Nov 30, 2009 5:22 pm   Post subject:   
If an agent fails to discuss COI during the negotiations leading up to the application for insurance, which is virtually impossible to prove in the absence of witnesses or a recording, he has committed concealment which allows the "injured party" (the policyowner) to rescind.

Every contract of insurance comes with a minimum 10-day free look period during which the policyowner is expected to read, understand, question, and decide to keep or return the contract to the insurer. Most fail to do so, relying on their (usually faulty) understanding of the policy based on the communication from the agent.

UL policies -- particularly VUL, EIUL, and MVA UL -- are exceptionally complex contracts, and include insane formulas that require calculations with numbers that have 6 or 8 digits to the right of the decimal point. Few agents have ever read the contracts they put in the hands of their clients. Most lawyers don't know how to read an insurance contract.

Sadly, most folks choose a UL policy based on the hypothetical illustrations the agent presents. They see $100 (or substantially larger) monthly premiums adding up to millions of dollars over time. Unfortunately, I've never seen a UL policy perform as the illustration projected. Most go in the opposite direction, eventually imploding because the minimum premium was never enough to support the policy to maturity in the first place.

How do I know this? Just take a look at the "Guaranteed Columns" in the illustrations. Unless they have something other than a string of zeroes leading to the last year of the policy, that's what will probably happen -- no cash value and no insurance long before the insured dies.

Does that make UL a bogus insurance product? Hardly. But it makes clear that more than the minimum premiums are needed to support the policy. Few persons, other than corporations and the very wealthy, truly have the financial means to make a UL policy work to its maturity date -- which is now AGE 120/121 in all policies, thanks to the CSO 2001 that has been adopted by all of the states. (It's also the reason life insurance premums have dropped about 5% in the past 5 years -- everyone has longer to pay on paper, so they don't need to pay as much.)

I'll be happy to answer any and all questions on any aspect of life insurance.
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