What is Variable Universal Life Insurance?
Variable universal life insurance is a type of permanent life insurance. Like regular universal life insurance, its much more flexible than whole life insurance. At the same time, it allows you to save tax-deferred interest.
In the name, variable refers to the policyholders ability to invest the accumulated cash value in a number of accounts. Like all permanent life insurance, variable universal life insurance builds cash value. The policyholder can choose among a wide variety of accounts in which to invest the cash value. Universal refers to the policyholders flexibility when it comes to making insurance payments. Of course, this flexibility is often based on the policys current accumulated cash value. In any event, variably universal life insurance differs from whole life insurance here because whole life insurance policies have a fixed premium. No flexibility.
There are a few ways in which a person can use a variable universal life insurance policy. First, and most obvious, is as a life insurance policy. The policyholders beneficiaries will receive death benefits upon the death of the policyholder. Too, a variable universal life insurance policy can be used as an investment tool. The policys cash value earns tax-deferred interest, which generically means the policyholder can save and save and save without having his or her savings taxed.
Another way to use a variable universal life insurance policy is to protect money from being taxed, and not just the money youre investing. This option is used mostly by wealthy individuals who want to avoid the estate tax. These people will give large sums of money to their children, who have their own variable universal life insurance plans, and the money is covered under a gift tax exemption.
Aside from financial protection and tax advantages, variable universal life insurance policies are also beneficial for educational, retirement, and estate planning and saving. With so many options, variable universal life insurance is beneficial to all age groups.
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