When it comes to variable UL and Variable Life, they give death benefits and cash values that differ because it’s based on the performance of its underlying investment portfolio. But, when it comes to understanding of these policies, it’s not that easy.
UL policies earn their interest using the cash value bucket, as noted above. The company will use the premium monies sent and put it into the so-called “General Account”. In simple words: the company takes on the risk of investing and credits the enforced UL policies with interest based upon their investment results. However, no direct link is established between the declared UL policies’ interest rate and the life insurance company’s investment portfolio.
Now, there is a link between how much the company gets back on its investment and the interest applied to the UL policies, but it’s not a direct one. However, the Variable UL and Variable Life policies finance the cash value bucket in many investments the policy owner can choose from – known as investment subaccounts. There is a direct connection between how much is earned on the cash value bucket and the investment subaccounts.
When the policy owner picks subaccounts that are attached to the stock market and there is a decline in the market, the policy may not be funded properly and extra monies will need to be paid for the policy to stay in force. When the stock market is doing well, earnings on that cash value bucket could surpass how much is needed for the UL cash value bucket.
Prospectus: What Is It and Why Is It So Important
Variable Life is found in both whole life and UL versions. Generally, there are numerous investment subaccounts that sort them from conservative to aggressive (or money-market or bond funds to growth-stock funds). By law, Variable UL and Variable Life have to be sold with a prospectus, which should be thoroughly read before the purchase of any one of the policies.
What is a prospectus? It’s a long document that can be a bit tedious to read. However, it needs to be done because extremely important information will affect the future performance of the policy. If you don’t want to deal with the prospectus, you need to find a professional to assist you in choosing the right policy based upon what your circumstances are.
No Guarantees With Variable Life and Variable UL Policies
Due to the direct correlation between the cash value bucket and investment subaccounts’ performance s, the Variable Life/Variable UL policy’s cash value isn’t guaranteed, meaning it’s the policy owner that bears the hazard. The policy owner has the ability to generate the best allocation of funds by picking among the fund options that are available. And, from this creation, they can get the best investment subaccounts that will meet their risk tolerance level and stated objectives.
High cash values come from the performance of good investments, which, in turn, leads to higher death benefits. But, performance of poor investments will decrease the amount of cash values and death benefits. There are some policies that stipulate death benefits will never drop below a certain amount.
What You’ll Be Presented With When Shopping For Life Insurance Policies
When looking at the Variable UL and Variable Life policies, you’ll be presented with both a proposal and the prospectus. Since the policy owner choses how the investment of the cash value bucket is made, there are more options than the UL policy. However, it also means that more things can work against the owner. Still, the owner has control over the cash value bucket.
Whole life, UL, Variable UL and Variable Life allow for policy loans. But, when taking loans out, it increases the chances of the policy prematurely lapsing. It can lead to negative tax penalties under some instances. Both the Variable UL and Variable Life policies may need to be yielded for its cash value with the policy owner given the choice to convert the policy for an annuity contract.
It’s important to remember that the purchase of a permanent life insurance for temporary means will only cost more in the long run. Term life insurance, on the other hand, is inexpensive. So, if this is what a policy owner needs, it’s best to look at term life insurance policies.
What You Should Consider Regarding The Variable Universal Life Policy
Some of things to consider with the Variable Universal Life, which can negate any tax advantages include:
• State and federal premium taxes differ among each state. However, the average is about three percent of premiums.
• Mortality and expense charges are evaluated against cash values that differ from 60 to 90 points.
• There is a 20 to 162 basis points difference in investment management assets charges.
• Surrender charges usually surpass the first year premium and lasts up to 15 years.
Before you distribute any future premium payments to investment subaccounts, be sure you look them over intensely. You want to be sure they are ideal for the risk tolerance of the policy owner. How balanced are they? Are there a number of investment choices that assumes the risk tolerances? There are all kinds of factors that can negatively affect a Variable UL or Variable Life policy’s well-being and performance. It’s important you understand this before moving forward.