What is variable universal life insurance? This whole life insurance combines the premium and death benefit flexibility of a universal life insurance policy with the investment flexibility and risk of a variable life insurance policy. This type of life insurance is considered a securities contract since the policy owner assumes the investment risk under the variable universal life policy.
A life insurance policy such as this must be registered with the Securities and Exchange Commission (SEC), and only agents who have passed the National Association of Securities Dealers (NASD) examination are allowed to sell these policies. Insurance agents in Canada are not restricted in selling these universal life policies because they are considered life insurance contracts. This type of variable life insurance is also referred to as a flexible premium variable life insurance or universal life II policy.
If you like to be in control of your investments this type of variable life insurance policy is for you. The blend of the features found in the variable life and universal life policies offer a choice of underlying investment account options. Bear in mind that the amount of the death benefit that will be paid out depends fully on the success of the investments you choose.
This type of universal life insurance policy can offer a great opportunity for a significant cash value, but if you die while the cash value is down, your policy will only guarantee a minimum death benefit. The pros and cons of a universal variable life insurance policy are laid out below.
Pros:
- Premium and death benefit flexibility
- Potential to increase cash value based on your choice of underlying funds and their performance
- Provides a hedge against inflation
- The availability to withdraw or borrow against the policy during your lifetime
Cons:
- More expensive than other types of whole life insurance plans
- Premiums must be high enough to cover the insurance portion and fees associated with the underlying funds
- You must have a basic understanding of stocks, bonds and securities in order to 'drive' your fund choices
- You are fully responsible to manage the investment accounts
- Not a good option for older policy owners with short-term investment needs
- The success of the policy hinges upon your investment choices and may lose value