Variable Unit-Linked or Variable Universal Life Insurance (VUL) policies compile and collate an insurance component with an investment constituent into a single product. It is a more non-traditional life insurance plan wherein portions of the premium are placed in different funds by the insurance company according to the investment objectives of the insured.
Policies, corresponding and conforming to the product obtained, may include a waiver of premiums agreement (typically for when the policyholder is diagnosed with a major critical illness), accidents and critical illness coverage, add-on hospitalisation coverage, and, of course, life insurance benefits. The inclusion of an investment component provides for an accelerated cash value accumulation and consequently a faster health fund growth.
FEATURES
VUL plans typically have comparatively more flexible premiums. Amounts above the regular premium is staked as additional investment and can thus, in favorable conditions, accelerate the accumulation of fund value.
As it is investment-linked, VUL plans may be able to rake in higher returns for you when compared to the benchmarks of other insurance policy types. This reflects the edge and exposure of the plan as a policy that assumes some investment risk.
USES
Financial Protection
As with all life insurance policies, the insurance component of VUL plans provide for health and accident coverage for policyholders and their family (depending on the issued policies). In such manner, family beneficiaries are, to an extent, financially protected from pressing diseases and premature deaths.
Health Fund Growth
Life insurance plans that accumulate fund value over time can be an ideal vehicle for growing a health fund. It is a sad reality that malaise and malady may increase in imminence as people age. Having a health fund is a good way to plot and plan for feasible future healthcare needs.
Estate Planning
Depending on estate size, VUL policies may be utilised in lessening hefty estate taxes. Determined by gross assets and accounting taxable gifts, involving VUL plans in estate planning may prove advantageous.
Saving System
Payments that are behind schedule is often a ground for the termination of policy benefits. Naturally avoiding the matter of a lapsed policy, a policyholder is compelled into heeding the payment schedule. As such, regular and routine saving is prompted and promoted. In contrast, direct investments into the market may be unserviced and unscheduled. Accordingly, good saving habits may be able to creep and seep into policyholder practice.
Possible Tax Advantages
The variable universal life insurance policy’s cash value growth is tax-deferred. As a result, VUL plans may provide possible tax advantages to the policyholders depending on their applied accumulation strategies.
CONSIDERATIONS
Investment Risks
As might be expected, having an investment component rolled into the policy entails shouldering some additional risks. As portions of the insurance account may be, directly or indirectly, put into stocks, bonds, and funds, there are now risks inherent in the policy that the insured, and not the investment company, carries. Depending on the policyholder’s risk approach and appetite, the invested component may be placed into balanced funds, fixed income funds, money market funds, index funds, or equity funds among others.
Complexity
VUL plans are not as simple as the more standard life insurance plans are. Owing to the fact that VUL has both insurance and investment components, proper planning and adequate administration is imperative and indispensable.
Costs
Plans may be subject to administrative costs and management fees. Investment into some asset classes may necessitate for potentially higher costs. These being the case, VUL policies may be more expensive than other types of insurance. Among the possible expenses to be charged on the policyholder are acquisition and administration fees, asset management fees, accounting fees, and the insurance charges. These are the prices to pay for its possible perks.
Taking all the aforementioned into account, VUL plans can be a good agent and instrument for saving and investing. It may be a reasonable choice for first-time investors who are still learning or busy professionals who lack the time and energy for a more active management of their funds. It goes without saying that it can also be a good means in securing some life insurance. Whatever policy the individuals intend to avail of should ultimately be in alignment to their financial goals. A financial advisor with fiduciary status may even be able to provide guidance or assistance all according to the financial position and plan of the investor. Overall, insurance and investment should be partaken of with sufficient financial wisdom.
