Variable universal life offers long-term life insurance protection for your loved ones, and the opportunity to grow your wealth by … The current generation of VUL policies have a wide variety of sub-accounts for the policy owner to allocate their cash surrender values into. This and other information is contained in the prospectuses for the applicable variable universal life insurance policy and its underlying investment options. Protective and Protective Life refers to Protective Life Insurance Company (PLICO) located in Nashville, TN and its affiliates, including Protective Life & Annuity Insurance Company (PLAIC) located in Birmingham, AL. In a VUL, the cash value can be invested in a wide variety of separate accounts, similar to mutual funds, and the choice of which of the available separate accounts to use is entirely up to the contract owner. Variable universal life insurance (VUL) is a type of permanent life insurance policy, meaning that as long as you keep paying your premiums, your beneficiaries will receive a death benefit when you die. They set their rates of return for cash value just like a bank would. The maximum cash value is determined to be a certain percentage of the death benefit. Then the costs of insurance would have the minimum negative effect on the growth of the cash value. VUL is relatively complex compared to traditional Whole Life or Term Life. **Unpaid loans and partial withdrawals reduce cash value and death benefit. variable universal life insurance Long-term coverage with the greatest potential to build cash value compared with other permanent policies. The examples and perspective in this article, Learn how and when to remove this template message, https://www.irs.gov/businesses/small/article/0,,id=164871,00.html. Variable universal life (VUL) insurance policies offer subaccount choices that allow clients to invest directly in the market — providing unlimited growth potential with added investment risk. These newer policies often offer 50 or more separate accounts covering the entire spectrum of asset classes and management styles. For information about Protective Life and its products and services, visit www.protective.com. With most if not all VULs, unlike whole life, there is no endowment age (the age at which the cash value equals the death benefit amount, which for whole life is typically 100). Very often persons in the United States with a net worth high enough that they will encounter the estate tax give money away to their children to protect that money being taxed. VUL is typically subject to surrender charges for a period of up to 15 years (more or less depending on the carrier) which can be very high in the early years of the policy. Companies and organizations linked from Learning Center articles have no affiliation with Protective Life or its subsidiaries. Retirement planning - because of its tax-free policy loan feature, the VUL can also be used as tax-advantaged income source in retirement, assuming retirement is not in the near future and the policy is not a modified endowment contract. In one theory of life insurance, needs based analysis, life insurance is only needed to the extent that assets left behind by a person will not be enough to meet the income and capital needs of his or her dependents. Product guarantees are backed by the financial strength and claims-paying ability of the issuing company. In fact when variable universal life policies first became available in 1986, contract owners were able to make very high investments into their policies and received extraordinary tax benefits. A variable universal life insurance policy is a type of permanent life insurance. It combines many of the unique benefits of life insurance with with earnings power of an investment account. The 'variable' component in the name refers to this ability to invest in separate accounts whose values vary—they vary because they are invested in stock and/or bond markets. Again, the policy must be properly funded for this strategy to work. With a typical whole life policy, the death benefit is limited to the face amount specified in the policy, and at endowment age, the face amount is all that is paid out. Each company is solely responsible for the financial obligations accruing under the products it issues. Descriptions of financial products contained in Learning Center articles are not intended to represent those offered by Protective Life or its subsidiaries. If it received favorable tax treatment as a life insurance policy it would be the perfect tax shelter, pure investment returns and no insurance cost. As with other universal life insurance policies, it has the potential to accumulate cash value over time. Some types of permanent life insurance have a cash value component that grows with each premium payment and gains interest. Email. Other alternatives for those in the 34% tax bracket that own their own companies would be to consider SEP IRAs, company 401ks or retirement arrangements from a company perspective, or to incorporate and consult a tax specialist. The cash value in life insurance is able to earn investment returns without incurring current income tax as long as it meets the definition of life insurance and the policy remains in force. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries. In addition to death benefit protection, VUL offers the ability to allocate among purely market-driven and guaranteed investment options. Variable universal life insurance policies have the cash value structure of variable life insurance, but you can use the cash value to pay premiums. And because they are life insurance policies, VULs may only be sold by representatives who are properly licensed to sell life insurance in the areas in which they operate. The number and type of choices available varies from company to company, and from policy to policy. There is another premium designed to be the maximum premium that can be paid every year a policy is in force. The policy offers greater growth potential when the markets perform well. Variable universal life insurance is most similar to indexed universal life insurance (IUL), except that it does involve substantially more risk with the investment provision. VARIABLE UNIVERSAL LIFE INSURANCE A hallmark of variable universal life insurance (VUL) is flexibility. This is because of the variable interest paid on the cash value of the policy, and the policy can be much safer than a variable universal life insurance policy due to its lack of being subject to market fluctuation. The most efficient policy in terms of cash value growth would have the maximum premium paid for the minimum death benefit. More specific rules are adjusted for premiums that are not paid in equal amounts over a seven-year period. Variable universal life (VUL) insurance also allows you to vary premium payments and the death benefit amount, within limits. Volatility of cash surrender values, especially at late duration, can cause a "reverse dollar cost averaging" effect that results in higher costs of insurance charges. Financial protection - as with all life insurance programs, VULs can be used to protect a family in the case of a premature death. The cash values would also be available to fund lifestyle or personally managed investments on a tax free basis in the form of refunds of premiums paid in and policy loans (which would be paid off on death by the death benefit.). If not monitored properly the cost of insurance may eventually exceed the cash outlay depleting savings. Taxes are the main reason those in higher tax brackets (25%+) would desire to use a VUL over any other accumulation strategy. Universal Life Insurance, a type of permanent life insurance, comes in different varieties. © Protective Life Corporation, Birmingham, AL. If the investment returns are very poor this could lead to a policy lapsing (ceasing to exist as a valid policy). Cash outlay - the cash needed to effectively use a VUL is generally much higher than other types of insurance policies. Variable universal life (VUL) insurance, as the name suggests, is a policy that combines variable and universal life insurance (i.e., flexible variable life insurance). Therefore, the greater the cash value accumulation, the lesser the net amount at risk, and the less insurance that is purchased. Estate planning - those with a large estate (A filing is required for estates with combined gross assets and prior taxable gifts exceeding $5,430,000 effective for decedents dying on or after January 1, 2015. The insurance company providing the policy must also be licensed as an "insurer.". If the maximum premium is exceeded the policy no longer qualifies for all of the benefits of a life insurance contract and is instead known as a modified endowment contract or a MEC. In addition, it offers the upside potential of variable investment options. Group Variable Universal Life insurance (GVUL) is issued by Metropolitan Life Insurance Company (MLIC), New York, NY 10166, and distributed by MetLife Investors Distribution Company (MLIDC) (member FINRA). Variable universal life is a type of permanent life insurance policy with features that include cash value, investment variety, flexible premiums and a flexible death benefit. See the 'Tax Benefits' section for more. And, as with universal life insurance, it provides a flexible premium and an adjustable benefit—meaning the policyholder decides how much to put in the policy above a set minimum. Variable Universal Life offers the potential for cash value growth through investment funds. VUL policies have a great deal of flexibility in choosing how much premiums to pay for a given death benefit. Universal and variable life insurance policies, like whole life, combine life insurance protection with the opportunity to build cash value on a tax-favored basis. Variable universal life insurance is a type of permanent life insurance policy, like whole life insurance. The maximum premiums are set by the IRS guidelines such that the premiums paid within a seven-year period after a qualifying event (such as purchase or death benefit increase), grown at a 6% rate, and using the maximum guaranteed costs of insurance in the policy contract, would endow the policy at age 100 (i.e. Variable Universal Life (VUL) is defined as a permanent type of cash value life insurance policy, in which the cash value can be invested into different accounts consisting, for example, of stocks, bonds and mutual funds. Variable universal life insurance (VUL) is a hybrid policy that combines elements of a variable life and universal life policy. This is because it offers a variety of underlying investment options including equity, bond and money market portfolios. What Life Insurance Product is Right for Me? Projecting the maximum illustrated assumed interest rates (generally, 12%), using current (or assumed) administrative expenses and current costs of insurance, without showing the prospective client several other assumed rates of return, creating a Blue Sky problem. For more information on other types of life insurance including universal life and indexed universal life, visit the Protective Learning Center. The tax free investment returns could be considered to be used to pay for the costs of insurance inside the policy. IDI is located in Birmingham, Alabama. In order to get a 9% rate of return in an ordinary taxable account, in a 34% tax bracket, one must earn 13.64%. List of Canadian provincial securities commissions, FINRA - look up a U.S. securities firm or broker in BrokerCheck, Health Insurance Portability and Accountability Act, https://en.wikipedia.org/w/index.php?title=Variable_universal_life_insurance&oldid=897575960, Articles with limited geographic scope from December 2010, Articles needing additional references from January 2009, All articles needing additional references, Creative Commons Attribution-ShareAlike License, Tax deferred growth of cash surrender values while a policy is in force, FIFO withdrawal status on premiums paid into the contract, Income tax free policy loans from policies that are not Modified Endowment Contracts, Income tax free death benefits (may be subject to estate tax if policy is owned by the insured). AflacAflac has a straightforward online quoting tool that can give you a sense of how much you will … Variable universal life (VUL) insurance is a type of permanent life insurance policy that allows for the cash component to be invested to produce greater returns. Investors should carefully consider the investment objectives, risks, charges and expenses of the applicable variable universal life insurance policy and its underlying investment options before investing. These are the features typically marketed by insurance companies, however the VUL in most cases will limit the insured to being able to take advantage of only one of these features listed. Variable universal life insurance is a type of universal life insurance — which gives you flexibility when it comes to how much you pay in premiums and the amount of your death benefit over time. When you visit Protective's websites, we may collect personal information from you via your browser or device, or through the use of cookies, analytics tools, and other technologies. Not all life insurance policies are alike. VUL is more complex than most other forms of life insurance and should be monitored closely throughout the life of the policy. Cost of insurance - the cost of insurance for VULs is generally based on term rates and as the insured ages, the risk of mortality increases, increasing the cost of insurance. It's similar to UL insurance, but instead of earning a specific crediting rate on the cash-value component, VUL allows you to put some or even all of the cash-value you may have in your policy, into a “variable account” comprised of investment funds. Protective® is a registered trademark of Protective Life Insurance Company. When you make payments, you invest your money in investment options, selecting from any of the choices available. In addition, VUL pays a death benefit that can be … This page was last edited on 17 May 2019, at 23:54. The basic features of a VUL policy are: Tax-deferred cash value growth Ability to choose sub-accounts to invest in They are similar to mutual funds, but have different regulatory requirements. Neither Protective Life nor its representatives offer legal or tax advice. The percentage ranges from 30% or so for young insured persons, declining to 0% for those reaching age 100. However, some participating whole life policies offer riders which specify that any dividends paid on the policy be used to purchase "paid up additions" to the policy which increase both the cash value and the death benefit over time. In one form of variable universal life insurance, the cost of insurance purchased is based only on the difference between the death benefit and the cash value (defined as the net amount at risk from the perspective of the insurer). Variable Universal Life Insurance. If a policy does not have the right amount of funding, it may lapse. Tax advantages - because of its tax-deferred feature, the VUL may offer an attractive tax advantage, especially to those in higher tax brackets. Some older VUL policies have limited sub-account choices. Like universal life insurance, variable universal life insurance (VUL) combines the protection of term insurance with an accumulation value. To maintain a death benefit guarantee, that specified premium level must be paid every month. A minimum guaranteed death benefit that won't decrease** as long as you continue to make your minimum premium payments on time, Flexible minimum and maximum premium payment options, The potential to earn higher than average returns compared to other types of permanent life insurance, Permits you to maintain a certain level of self-directed control over how your cash value is invested, Allows you to better control your individual risk tolerance. This is the premium that often reaches the most efficient use of the policy. These tax advantages can be used for either... Education planning - the cash value of a VUL can be used to help fund children's education, as long as the policy is started very early. Each of these features can be achieved through other means. While you may experience better than average cash-value growth with a VUL, you could also experience a decrease in your cash-value due to poor performance of your investment options. Variable universal life insurance is permanent life insurance—it remains in force for the policyholder's whole life. In a VUL, the cash value can be invested in a wide variety of separate accounts, similar to mutual funds, and the choice of which of the available separate accounts to use is entirely up to the contract owner. Variable universal life insurance offers the potential to build cash value based on the performance of the investment options you choose. Also, putting money into a VUL can be used to help children qualify for federal financial aid, since the federal government does not consider the cash value when calculating EFC (. The standard set was twofold: to define a maximum amount of cash value per death benefit and to define a maximum premium for a given death benefit. Insurance and annuities are issued by PLICO in all states except New York and in New York by PLAIC. The 'universal' compone… We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making investment, social security, retirement planning, and tax-related decisions. Universal life insurance is a type of permanent life insurance with a cash value that grows based on the current interest rate set by the insurer. Premier VUL. Policy administrative expenses and costs of insurance may increase at the company's whim, subject to a contractual maximum. If the 7 year level guideline premium is exceeded, then the policy becomes a MEC. Because of its cash value potential, a VUL can be a way for you to complement your retirement nest egg, while at the same time, have the life insurance coverage you need. We know that choice can make all the difference. Similar to indexed universal life, VUL is primarily an investment vehicle that also offers a life insurance provision. Variable universal life insurance … Universal life, along with variable and whole life, are the three amigos in the world of cash value life insurance. Variable universal life is a type of permanent life insurance, because the death benefit will be paid if the insured dies any time as long as there is sufficient cash value to pay the costs of insurance in the policy. Premier VUL (PVUL) is an accumulation-focused variable product that offers two important design options: choice and flexibility. Another use of Variable Universal Life Insurance is among relatively wealthy persons who give money yearly to their children to put into VUL policies under the gift tax exemption. This dual regulation helps protect consumers, who can look up the track record of offenses of any provider listed by the regulating SRO (self-regulatory organization) or provincial securities commission. Here, we're looking at the basics of a variable universal life (VUL) insurance policy that includes what it is, how it works, and a few of the pros and cons. Variable universal life insurance provides permanent protection with the potential to build cash value through scheduled premium payments, but offers a variety of asset allocation options. This flexibility is in contrast to whole life insurance that has fixed premium payments that typically cannot be missed without lapsing the policy (although one may exercise an Automatic Premium Loan feature, or surrender dividends to pay a Whole Life premium). 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