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Security with Investment: Life Insurance Often Overlooked
The excess is invested by the company and builds cash value beginning with the first year. Once you have cash in it, you can actually make a withdrawal just like you would from any savings account, as long as you leave enough money in it to pay the cost of insurance. Like a VUL, the universal life is flexible—meaning you can vary not only the premium but also the face value of the policy. The difference in a Variable UL is the "variable" part. The money invested is controlled by the client or by the agent on behalf of the client. That is, the company will have a list of available funds and investments—similar to mutual funds, but with different tax criteria. Some of these will be slow growing but very stable while others could be growth funds—riskier, but with a higher potential for earnings. If a fund begins to decline, moneys can be moved from one fund to another. A VUL is for younger people who have time to recover if some of their investments lose money. It is also for people who understand the ups and downs of the market and who realize that securities will go down as well as up and who understand the importance of diversifying the investments. Put all your money into one high earnings growth fund, and you're likely to lose it. The possibility of loss is what scares most people away from a VUL, even though their 410K and IRA is invested in a similar manner. A VUL has, therefore, one advantage that your IRA does not have. Most companies will guarantee a minimum death benefit if you should die, regardless of what the investment portion does. As long as you pay a minimum premium, sufficient to pay the cost of insurance, you will have life insurance regardless of what happens to the cash value. Furthermore, since the proceeds are tax exempt, a VUL is a good way to shelter some of the assets you would like to pass on to your heirs. Like a whole life or universal, you can borrow against a VUL. Unlike a universal, however, you usually cannot make a cash withdrawal from the savings except in the form of a loan. Of course, when you pay the interest or principle back on the loan, you are actually paying yourself. Furthermore, you do not have to pay taxes on the money you have borrowed from the policy. The primary reason a
VUL is not offered by most companies is that the investment portion
is in "securities," and no one can sell securities, i.e. variable
products such as stocks, bonds, and mutual funds, without a federal
securities license. The average life insurance agent does not have
this license. A certified financial advisor may have the license
in securities, but may not be a specialist in life insurance. A
VUL is a solid life insurance option for the right person, but you
need a life insurance specialist who is also a licensed in securities.
The only way to find such a person is to ask.
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