Please visit our Privacy Policy for more information about our information practices, including information about your privacy choices. **Unpaid loans and partial withdrawals reduce cash value and death benefit. Proper funding, investing, and planning are usually required in order for the VUL to work as expected. As long as your premiums are paid, your variable universal life insurance policy will stay in place. The premiums can vary from nothing in a given month up to maximums defined by the Internal Revenue Code for life insurance. Not all life insurance policies are alike. 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. They are similar to mutual funds, but have different regulatory requirements. The entire maximum premium (greater than the 7 year premium) can be paid in one year and no more premiums can be paid unless the death benefit is increased. An alternative for this in the 34% tax bracket would be to consider using Variable Annuities which does not limit the contributions and withdraw from it without annuitizing the contract. It combines many of the unique benefits of life insurance with with earnings power of an investment account. Securities offered by Investment Distributors, Inc. (IDI) the principal underwriter for registered products issued by PLICO and PLAIC, its affiliates. Like universal life insurance, variable universal life insurance (VUL) combines the protection of term insurance with an accumulation value. The dual nature of VUL provides you with valuable life insurance coverage, along with a cash-value component that permits you a certain degree of control over where you want to allocate the cash-value portion of your policy for greater earning potential along with the market risk that comes along with it. To add more confusion the seven-year MEC premium level cannot be paid in a VUL every year for 7 years, and still avoid MEC status. If the investment returns are very poor this could lead to a policy lapsing (ceasing to exist as a valid policy). 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. Variable universal life insurance policies have the cash value structure of variable life insurance, but you can use the cash value to pay premiums. 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 (. Companies and organizations linked from Learning Center articles have no affiliation with Protective Life or its subsidiaries. Universal life insurance policies can grow over time, much faster than a whole life insurance policy. Variable Universal Life Insurance. Financial protection - as with all life insurance programs, VULs can be used to protect a family in the case of a premature death. In the extreme would be a life insurance policy that had no life insurance component, and was entirely cash value. Variable universal life offers long-term life insurance protection for your loved ones, and the opportunity to grow your wealth by … In this circumstance, the person they were working with recommended that they fund a variable universal life insurance policy as a “personal deferred comp plan.” The rep positioned the idea as a way to provide a death benefit to cover mortality risk while offering a tax-free savings vehicle for retirement and their kids’ college tuition. A MEC still receives tax free investment returns, and a tax free death benefit, but withdrawals of cash value in a MEC are on a 'LIFO' basis, where earnings are withdrawn first and taxed as ordinary income. To keep the policy in force, typically no premium needs to be paid as long as there is enough cash value in the policy to pay that month's cost of insurance. Separate accounts are organized as trusts to be managed for the benefit of the insureds, and are so named because they are kept 'separate' from the 'general account' of the life insurance company. The tradeoff for this growth is the investment risk – including the potential to lose cash value when markets perform poorly. If this continues long term the savings will be depleted and insured will be given an option to increase the cash outlay to cover the higher cost of insurance or cancel the policy leaving them with no savings and either no insurance, or very expensive insurance. The percentage ranges from 30% or so for young insured persons, declining to 0% for those reaching age 100. 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. Neither Protective Life nor its representatives offer legal or tax advice. Variable universal life insurance (often shortened to VUL) is a type of life insurance that builds a cash value. The 'universal' component in the name refers to the flexibility the owner has in making premium payments. The information presented is for educational purposes and is meant to supplement other information specific to your situation. For more information on other types of life insurance including universal life and indexed universal life, visit the Protective Learning Center. Variable universal life insurance is permanent life insurance—it remains in force for the policyholder's whole life. This is yet another key advantage of VUL over Whole Life. © Protective Life Corporation, Birmingham, AL. VUL is relatively complex compared to traditional Whole Life or Term Life. 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. 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. 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. In addition to death benefit protection, VUL offers the ability to allocate among purely market-driven and guaranteed investment options. This is because it offers a variety of underlying investment options including equity, bond and money market portfolios. Life insurance protection for those who matter most. 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. 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.). It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries. 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. 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. See the 'Tax Benefits' section for more. They do the job of covering your income if you die, but they also act as a savings 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. Some criticism is not about the product, but rather the sales tactics used by some insurance agents. Learning Center articles may describe services and financial products not offered by Protective Life or its subsidiaries. Variable universal life insurance (VUL) is a hybrid policy that combines elements of a variable life and universal life policy. The loss and gain of the investment fund mainly depends on the stock market flow. The basic features of a VUL policy are: Tax-deferred cash value growth Ability to choose sub-accounts to invest in If a policy does not have the right amount of funding, it may lapse. Variable universal life insurance blends the features of universal and variable life insurance by allowing you to invest in bonds, money market mutual funds, or stocks, and enabling you to change your death benefit and adjust premiums. When you make payments, you invest your money in investment options, selecting from any of the choices available.
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