Variable Universal Life

The variable universal policy is the most expensive type of life insurance on the market today.  And yet, with a little luck and attention to detail it can become a very valuable asset.

This type of policy lets you direct where a portion of your premium will be invested.  After the cost of mortality and the company's expenses have been withdrawn, the balance of your premium can be directed to one or more of several options.

The original version of variable life had little flexibility and limited investment choices.  This is no longer the case.  Some companies offer 50 or more separate accounts in which to invest the policy cash value.

Before you get too serious about buying this type of plan, be aware that you are ultimately responsible for its long-term success... or failure.

A traditional permanent policy (i.e. whole life) provides guaranteed cash value.  This is a mandated reserve which then permits the company to ensure a level premium that will never change or expire.

The variable universal life policy suggests a planned premium designed to keep the death benefit in force based on company mortality expectations. The performance of your investments will impact the death benefit.  This means the actual amount of premium may increase over time.

When you apply for this type of policy you are asked to choose which separate accounts will be used for investment of the cash value.  The selection can include clones of numerous well-known mutual funds, as well as in-house managed accounts.

One choice is a guaranteed principal account used primarily to keep policy loans from deteriorating due to poor market performance. Your choice of investment should be limited to the stock and bond accounts based on your risk tolerance.

Variable life insurance typically has ongoing policy fees and expenses not found in traditional plans.  In addition, each investment account has its own management fee.  And, there is a significant surrender charge associated with most variable policies.

Insurance agents are required to give you a current prospectus before taking your application.  Don't treat this lightly because you better do your homework and identify all the expenses associated with what is being presented to you.

Past performance does not guarantee future results, but a company's investment track record - when compared with the performance of market indexes - does provide a basis upon which to judge the professionalism of an insurance company's asset management capability.

A word of advice... before getting too excited about a specific type of life policy get a handle on how much protection you really should have.

One way of doing this is to determine your human life value to your family.