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Variable Universal Life Insurance: A Potentially Higher Growth Product than Universal

Those who understand the various types of life insurance know that if you want a product with the potential for building your assets, giving you cash you can draw or convert later in life, and the lowest possible premiumwithout settling for a term policyyour best option is universal life. That remains true, but variable universal life insurance while having the same flexibility as universal life, actually has a potential for a much higher growth in the investment side of the policy. . .
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That's because, instead of paying typical interest rateswhich are influenced by the rates on very safe investment products chosen by the companythe accumulation portion of a variable policy can be invested in a much broader portfolio, including stocks and bonds, mutual funds, equity funds, and money market funds. Consequently, a much greater potential for growth exists than in a traditional universal policy. Your investments can increase in value as the market rises, and you can earn dividends whenever a company pays dividends to share holders. The shares can be automatically reinvested for even more growth.

As with any retirement instrument, any tax on the growth of a variable life is deferred as long as the policy is not surrendered. Earned interest or dividends can also be used to pay premiums, thereby lowering the cost of your annual premium for the policy. Upon the death of the insured, either the cash value or the face value will be paid, whichever is higher.

Variable life policies were common at one time because of the potential for high growth in the savings portion and the ability to create a large tax free estate for one's heirs. However, they had a downside. If the market performed poorly, a person's entire investment could suddenly be lost, leaving him without enough money to pay the cost of insurance for the death benefit. If the accumulation fund dropped, the face value of the death benefit also dropped. Those who did not understand their policies became frustrated over the need to increase their premiums and many people simply lost their life insurance. Also, a variable life policy does not allow one to take cash out while still living. Loans, if in excess of IRS allowances, could be taxable.

A variable universal policyavailable today from agencies and agents with general securities licensescombines the flexibility of a modern universal policy with the growth potential of the old variable life policy. VULs, however, are not suitable for seniors, nor for younger people who cannot afford a risk. They do need to be managed as there is still risk of loss of the accumulation value which would result in a need for increased premiums to maintain the face value of the policy. Many companies do guarantee a minimum death benefit as long as a certain premium is paid.

The VUL investor needs to be a person who is comfortable leaving funds in the hands of a qualified variable funds professional. Those individuals can be hard to find as the government requires anyone who deals in variable products to have a general securities license. This license is extremely difficult to get, although your stock broker or financial planner will probably have one. However, even that may not be satisfactory as most brokers who specialize in trading are not also experts in the various forms of life insurance. Still, you should not give up if you are young and can afford a controlled risk. Keep searching until you find a life insurance professional with a general securities license. Such an individual will usually be able to represent companies that offer a VUL product.

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