Why Variable Universal Life Insurance May Be the Perfect Product for You
Life insurance is a necessary and core part of your complete financial portfolio. (This fact is possibly not applicable to you if you’re financially independent.) However, the questions are always how much should the policy’s face amount be, and what kind of life insurance policy should you buy? An additional question is often “How should my life insurance policy (or policies) fit into the whole of my financial portfolio?”
You have likely come across the array of varied and various financial products available to you, each with its special application, its quite particular role to play in the grand scheme of your financial life. Among these would be:
Equities. These investment vessels are intended to help you grow your total assets, with an eye toward your future.
Fixed Income Investments. With these securities, your purpose is to have a steady stream of income in the here-and-now.
Life Insurance. This (typically) protects your loved ones and possibly your key business partners in the event of your untimely death.
Annuities. The predominant use for these financial products is building up tax-deferred capital accumulation to be drawn upon (with taxable events) in the future.
Trusts. These, along with their legal counterpart (Wills), are used to protect estates and, possibly, businesses.
Selecting and balancing all of these various financial pie-slices can become wearisome and possibly even confusing. What if you could have an all-in-one, multifaceted investment vessel that covered all of those above aspects of your whole financial portfolio? Well, the good news is that you can.
Enter Variable Universal Life Insurance
Variable Universal Life Insurance (“VUL”) had its inception in the late 1980s and has become, arguably, the best kept financial planning secret around. And yet, it’s a secret hidden in plain sight. It is a one-year renewable term life insurance policy bundled together with an investment portfolio. There is a minimum premium that you must pay in order to keep the term life insurance policy in place, but part of that premium goes into the investment part of the policy. Because this is a life insurance product, those investments accrue money without incurring taxes. As long as you don’t go below the minimum premium payment, you can lower or raise the premium you’re paying at will, with the help of your financial advisor. You also have a say in how the investment part of the money you put into the policy gets allocated. This, too, can be changed at will with the help of your financial advisor and in accordance with the investments offered by the policy’s underwriting company.
Critics of VUL will tell you that there’s a problem with the possibility of the investment part losing money, even to the point where you may be called upon to pay a large premium (temporarily) just to keep the term life insurance in force. However, wise and savvy use of VUL simply dictates that you “overfund” the policy. In other words, you should buy a VUL policy from the outset with the idea that you’re going to put substantially more money over and above the minimum payment required into the policy, with the purpose being to grow as much cash value over time as you can.
VUL policies even, by law, are sold to you with a prospectus, because while being life insurance they are also recognized as SEC-regulated investment products.
Remember, this cash value will grow and accumulate without taxation as long as you keep the money in the policy. What’s more, since this is a cash value life insurance product you have the privilege of borrowing money out of the policy, without it being a taxable event, at “dirt cheap” payback interest rates.
In addition to overfunding your VUL policy, you need to consult with your financial advisor so that you don’t turn your life insurance into an endowment contract–in which case there can be taxable events. (Yes, the government is always looking for way to take your money, so you have to be careful with the overfunding ceiling to keep your money tax-sheltered.) But with these two aspects of your VUL policy carefully watched over, along with the performance and allocation of the investment aspect, you can use it for everything we listed above — from tax-deferred capital accumulation, to estate planning and protection, and all the while protecting those who depend on you in life in the case of your death.
If there is any such thing as a “miracle product” in the financial world, VUL must be it.
Daron Skibosh is an insurance analyst in Phoenix, Arizona. He works hard to assist his clients in selecting the best insurance to meet their needs, which include policies like no medical exam life insurance.
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Category: Life Insurance
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