Variable Universal Life Insurance
Variable universal life insurance is a type of insurance that
builds up cash value. Unlike traditional whole life policies that
offer guaranteed, fixed rates of return, variable universal life has an investment component where some of your
premiums are invested in stocks and bonds through separate accounts.
"Universal" refers to the fact that the premium is somewhat flexible. You can add more money to the separate
accounts, but there is risk because the returns are not guaranteed. If you choose good investments in your separate
accounts, then a variable universal life policy can offer great returns. If returns are dismal then you could face
increased premiums in the next year because there needs to be enough there to fund the expenses of the policy each
Another way to look at this policy is to think about the phrase "buy term and invest the difference." That
is essentially what the insurance company is doing for you when you purchase a variable universal life policy. Your
premium pays for an underlying guaranteed death benefit and there is also money being invested in stocks, bonds,
and mutual funds.
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