A universal insurance company will normally offer different types of universal life cover policies, and one of them in the variable life insurance policy. This type of cover stands out for its vast investment options that it offers to the policyholders. One can opt to invest their premiums in investment tools like bonds, mutual funds, stocks and other related tools. Moreover, you can spread the cash in different accounts instead of putting all your eggs in one basket. However, this type of policy has its own merits and demerits which you have to consider before settling for it, and this post looks at the major ones to include in your considerations.
The Advantages
• Premiums are very flexible -This is very advantageous as far as the growth of the cash value of the policy is concerned. The variable life insurance policy premiums have both a maximum and a minimum payment. This means that part of the premium goes to the policy cover account while the rest is channeled to investment instruments. Moreover, chances of the policy lapsing due to inability to meet the premium payments are slim since the policy cash value account offers a stable cushion for this eventuality.
• Taxation Advantage -So long as the returns on the policy cash value are still in the policy account, they remain tax deferred. Normally, this account would be subjected to a capital gains tax of fifteen percent. However, you can turn around this advantage to your benefit by using the cash value of the policy to secure zero interest loans. That way, you totally avoid the paying tax on the returns made from investing the cash value of the policy account. However, make sure that the total cash value and the loan amounts never equal at any particular moment, otherwise you can be end up paying very high income taxes.
The Disadvantages
• High Investment risk -Since you are putting part of the premium in other investments, there is always the risk of losing money. This depends with the investment instruments that you choose. However, some underwriters usually offer a minimum rate of return guarantee on the variable universal life cover policies, though the guaranteed rate might be very low -even 2 percent. Moreover, you have to also factor in the investment fees, because these could sometimes dip into your investment returns. For this reason, it is very important to choose a universal life insurance company that guarantees a rate of return that is within reasonable market ranges on this policy.
• High Premiums -Being a permanent type of life insurance with investment options, it goes without saying that variable universal life insurance still has higher premium rates as compared to term life cover policies. However, it is better to focus on the long term gains if you want to choose this type of policy. For this reason, the policy is very ideal for people with families.
The above pros and cons of a variable life insurance policy might apply differently to different people with different financial capabilities and in different markets. It is therefore important to choose a universal life insurance company that will offer you the best deal with reduced risks on the variable universal cover policy.
The Advantages
• Premiums are very flexible -This is very advantageous as far as the growth of the cash value of the policy is concerned. The variable life insurance policy premiums have both a maximum and a minimum payment. This means that part of the premium goes to the policy cover account while the rest is channeled to investment instruments. Moreover, chances of the policy lapsing due to inability to meet the premium payments are slim since the policy cash value account offers a stable cushion for this eventuality.
• Taxation Advantage -So long as the returns on the policy cash value are still in the policy account, they remain tax deferred. Normally, this account would be subjected to a capital gains tax of fifteen percent. However, you can turn around this advantage to your benefit by using the cash value of the policy to secure zero interest loans. That way, you totally avoid the paying tax on the returns made from investing the cash value of the policy account. However, make sure that the total cash value and the loan amounts never equal at any particular moment, otherwise you can be end up paying very high income taxes.
The Disadvantages
• High Investment risk -Since you are putting part of the premium in other investments, there is always the risk of losing money. This depends with the investment instruments that you choose. However, some underwriters usually offer a minimum rate of return guarantee on the variable universal life cover policies, though the guaranteed rate might be very low -even 2 percent. Moreover, you have to also factor in the investment fees, because these could sometimes dip into your investment returns. For this reason, it is very important to choose a universal life insurance company that guarantees a rate of return that is within reasonable market ranges on this policy.
• High Premiums -Being a permanent type of life insurance with investment options, it goes without saying that variable universal life insurance still has higher premium rates as compared to term life cover policies. However, it is better to focus on the long term gains if you want to choose this type of policy. For this reason, the policy is very ideal for people with families.
The above pros and cons of a variable life insurance policy might apply differently to different people with different financial capabilities and in different markets. It is therefore important to choose a universal life insurance company that will offer you the best deal with reduced risks on the variable universal cover policy.