Variable Universal Life or VUL was the hottest selling ticket in the Life Insurance industry half a decade ago. People were sold on the possibility of the stock market helping them build their nest egg and paying for the policy as it matured. Fast forward five years later and the latest financial crisis has affected everything from banks, mortgage companies, investment firms and several 401K and retirement plans. Any stock-related product must be carefully reviewed to ensure the recent free fall the market has suffered has not put your variable life insurance in jeopardy.
This is not to say it is not a sound product, when variable universal life is used in the correct circumstances, with the right selection of investment funds and funded with the guideline premium* these policies can fulfill their intended purpose of providing life insurance protection with an opportunity to increase its value over time. *(Most insurance agents sell these with the minimum required premium, making them look less expensive but creating a higher future risk).
Normally, insurance agents sell these types of variable life insurance policies projecting 10 to 12%* rate of return on your investment within the policy. But some of these variable universal life policies are a ticking time-bomb waiting to explode not only because of the investment risk but because of increasing “cost of insurance” within the policy. If the investments contained within the policy have dropped in value significantly there may not be enough value in the cash value account to offset the rising cost of the annually increasing Term Life Insurance the variable universal life policies use. This would mean that during the later stages of the variable life insurance policy (and the insured's life) increases in the premium amount would create a situation where there is not enough cash value left in the policy to pay for the increasing cost of insurance. That means you would either have to come up with additional premiums or the policy would be cancelled, leaving the individual without life insurance and no way to obtain a new policy and potentially a large phantom income tax bill. *(12% is maximum allowable investment return projection that insurance companies can use)
By comparison, whole life policies are a much more conservative product with guaranteed premiums, guaranteed life insurance and guaranteed cash value inside the policy. There is no stock market aspect involved in the cash value projection. Also whole life provides a very attractive internal rate of return* of approximately 5% over the long term period, usually 20 years or more. So, there are no more sleepless nights worrying about whether the stock market is up or down, Whole life quote also gives you the peace of mind that insurance will always be there as long as guaranteed premiums are paid. *(Internal Rate of Return is the net return without calculating cost of the insurance benefit factored in)
Asking the right questions and carefully selecting the right insurance will not only prevent financial turmoil, it will also help you to create substantial wealth for you and your loved ones. If you own a Variable Universal Life (VUL) or Variable Life Insurance (the policy with a stock market component) we strongly suggest you review it and ask your insurance company to provide you an "In-force Illustration" with conservative rate of return and with guaranteed expenses. If you need any further help, please call (866) 972-3262 and let the insurance and financial planning experts at BeamaLife help you to determine the best options for you.
BeamaLife is committed to finding you life insurance solutions that work! We can evaluate your existing plan and decide the best course of action for your future. Give one of our specialists a call today at (866) 972-3262 or complete a life insurance quote request now.
