What Are The Advantages Of Variable Universal Life?
Variable universal life insurance is growing in popularity every year. One of the biggest reasons for this is because it is being recommended and sold more and more by financial planners. Why are these financial professionals so high on variable universal life insurance policies? Because if it's used right, this is one of the most powerful financial assets you can own.
Now, life insurance was always intended to be a bridge between your younger years when you're just starting out and first gathering assets, and your later years when you've become, hopefully, well-off and have plenty of money in the bank and amassed assets. There are also special circumstances for using life insurance such as with estate planning. But what this all comes down to is that the kind of life insurance known as "term" is the kind that the vast majority of people should have.
Around the middle of the 20th century, the life insurance industry invented a new kind of life insurance that it called whole life. The idea was for this to be a permanent policy that could build cash value--tax-sheltered cash value, too. The idea also was to keep this policy for a very long time--possibly, your "whole life". The industry was trying to cater to the public's desire to have things that last, that they own, and that give back to them. So, the whole life policy was supposed to be analogous to owning your own house in which, over time, you build equity, whereas the term policy was merely a "rental" which, when you stopped paying the rent (premiums) on it, simply expired; you don't build equity in a home you are renting.
But whole life had problems. It was very expensive compared with term, and cash value accumulation was, well, not all that. And people began to slowly realize that they could "buy term and invest the difference", instead of own whole life. This meant they could buy cheap life insurance (term), then use the money they saved as the difference in price with that and whole life, and invest in the stock/bond market and make MORE money than with whole life.
Well, this could cost the life insurance industry a lot of money--so, nearly 20 years ago, they invented a new product that allowed people to "buy term and invest the difference", but with THEM. This was Universal Life, which quickly evolved into Variable Universal Life.
Variable Universal Life is a term life insurance policy bundled together with a normal investment portfolio, which the insured can customize to their own risk tolerance and financial goals. Like other "permanent" life insurance policies, these policies can eventually build enough cash value to pay for themselves. But, while the term life premiums, the choices with investments, and the greater financial return potential are all advantages--here's most the incredible advantage of this powerful financial product: those (potentially) more powerful financial investment returns all accumulate TAX SHELTERED. Now, there may be tax consequences if and when a withdrawal is made from the policy's cash value, but there are no taxes paid on accumulation, because this is a life insurance product. Any financial professional will tell you that if you can ever grow your money tax-free, do it!
So, there you have it: buy term and invest the difference--and beat the tax man--with Variable Universal Life.
