UNIVERSAL LIFE INSURANCE
Universal life insurance is similar in some ways to whole life insurance. Both types of insurance provide life insurance plus an investment of some form that you will contribute to regularly and which can earn you a return on your investment. The main difference is that universal life gives you a wider choice in your premiums and investment options. In addition, the actual death benefit may also change according to the performance of the investments. In other words, the value of the policy and payout may go up or down depending upon the performance of the investments. There are several other parts that are unique to universal life insurance policies:
A. Using your cash value.
Like whole life insurance policies, you can borrow against the cash value of your universal life insurance policy. However, unlike whole life, you can also use the cash that has built over time to pay your monthly premium, but if you use your cash value to pay your premiums for the policy, the investment value will reduce accordingly as you use it.
B. Variable rates on your investment portion.
The investment funds that build up over time do so at a variable rate that can change from month to month.
C. The investment passes on to your beneficiary tax-free.
This is a very important aspect of universal life insurance policies, if left untouched, the investment portion of your premium dollars passes on, tax-free, to your beneficiaries upon your death. Actually, If you want the most flexibility in your life insurance policy, term life plus investment value plus the ability to pay your premiums with accumulated premium dollars or income you have earned from your investments, then universal life insurance will probably be the best choice for you.
VARIABLE LIFE INSURANCE
Focusing mostly on the investment aspect of the policy, most of the premium dollars for variable life insurance are applied toward the investment component.
A. Large choice of investments.
You can select the type of investments you want to make with this type of insurance. Choices include money market accounts, stocks, bonds, mutual funds, and more. This type of life insurance behaves more the way an investment account does, with fund managers to manage your investments so they will hopefully build the cash you seek to meet your financial goals, especially in the event that something untimely happens to you.
B. If your investments perform well, your death benefit will be paid off at a substantial rate.
If the investment funds aren’t good performers, the amount paid to your beneficiary will be lessened. With the present volatility of the stock market, this can be a disconcerting thought, but one you will have to consider carefully.
C. Variable death benefit.
Although a guaranteed amount will be paid out at the time of your death, with variable life insurance, that benefit amount will vary. If your family consists of young children and a spouse who is not working full time, this might not be your best option.
D. You can also take out a loan against your variable life insurance.
The amount you are able to borrow depends on the type of investments you have at the time of your loan application. The policy will also need to be vested for a certain period of time in order for you to access the money. For those who are well versed in watching the stock market, a variable life insurance policy may be just the type of policy which can provide you with a guaranteed payout to your beneficiary, while also giving you the chance to earn a lot of extra tax-deferred or tax-free dollars. You have the opportunity to make some real cash on a variable life insurance policy if you know what you are doing or have a good financial planner to help you.