A variable universal life insurance policy (VUL) combines the potential higher rate of return of the financial markets, flexible premium payments, and lifelong permanent coverage. It has growth potential because the owner can choose from among a number of investment options, called subaccounts, in which to invest the cash value. A brand-new type of VUL was introduced in 2022 that makes it easy for your financial advisor to choose and manage your life insurance value as they would your other investments.
Should life insurance be part of a financial plan?
Yes! Life insurance provides money for your family if you pass away and can no longer contribute financially. It could be the key to the success of any financial plan if you pass away unexpectedly and leave behind financial obligations or estate taxes.
Why involve your financial planner in choosing life insurance products?
Your financial planner can help determine how much insurance you need, but until recently they could offer only limited help with cash value investments. Now, a new version of VUL makes it easy for advisors to manage the cash value for you. They can set it up to match your overall investment objectives. Thus, your life insurance not just protects your family in case of your death, but it directly contributes to your overall financial plan.
How does VUL work?
- Adjustable death benefits: As with any universal life product, the death benefit protection can be adjusted up or down, as long as you agree to changes in the premium payments.
- Flexible premiums: premiums can be made more or less often and for more or less money as long as you pay the minimum required to keep your policy in force. But why would anyone want to pay more than needed? The answer lies in the potential for a higher cash value.
- Cash value potential: any type of permanent life insurance policy builds cash value as premium payments continue. Variable Universal Life gives you the ability to invest that built-up value in a selection of subaccounts.
- Investment options for long-term growth: advisor-managed Variable Universal Life takes VUL one step further: it allows your financial professional to directly manage the value of your insurance policy just as they do your overall investment strategy.
Who should consider VUL?
Why would anyone want to invest within their life insurance policy? The answer is TAXES. If you need life insurance and are looking for a tax-favored way to invest money, then a VUL policy may be right for you. The excess premium you contribute and your policy’s investment earnings grow income-tax free within the policy. If you need that cash value, you can access it via a loan. Loans are not subject to income tax, and the loan is repaid at your death out of the policy’s tax-free death benefit. If you end up not needing the cash value for yourself, then it is paid out to your beneficiaries at your death, tax free.
When to review your VUL policy?
During an annual review with our financial advisor, at minimum. If yours is an advisor-managed VUL, you have the advantage of already placing your investment decisions in good hands – and of your advisor being able to make needed changes to your VUL investments in real time via an online dashboard.
It’s also a good idea to check with your advisor when you experience increased risks or significant life changes such as marriage, birth of a child, changing jobs or employment benefits, and any potential windfalls like raises or bonuses.
When you update your estate plan, make sure your financial advisor and insurance contact know of any updates to beneficiaries or trustees.
Variable Universal Life Insurance FAQ
- Is advisory variable universal life insurance the same as universal life policies (UL) and variable life insurance (VL)? All three products provide life insurance coverage, meaning that the beneficiaries you name will receive the death benefit when you die. A big advantage of these policies is that the investment earnings are not subject to income tax, allowing the value to potentially grow over several years. Even better, your beneficiaries will not owe income tax on the death benefit they would receive.
- What if I later find that I need the money I’ve invested? You can take it out of the policy as a loan. You won’t have to repay the loan – it will be deducted from the amount your beneficiaries would receive. The main difference between advisor-managed VUL and UL or VL is that the cash value component can be managed by your own financial advisor. The policy cash value can be invested in the financial markets: mutual funds, stock market indexes, and other securities — meaning more growth potential (and more loss potential).
- Does advisory variable universal life insurance expire? No – a variable universal life policy stays in force unless you decide to cancel it, or the policy can lapse due to lack of funds.
- What fees can I expect to pay with an advisor managed VUL policy? Your advisor may charge a fee based on the value of the investments. In other words, they do better when you do better! Fees range from zero to 1.5%. and you will know up front what the fees are before your policy is issued. Additionally, the insurance company charges a small amount against your premium payment to pay the required state premium tax (usually less than 2% of the premium payment). And of course, the insurance company charges an amount each year for the cost of insurance providing the additional death benefit.
Learn more about advisor-managed Variable Universal Life Insurance
Contact Brad Mueller at Monarch Insurance Partners for more information about advisor managed VUL and other types of life insurance. Click here to schedule a phone meeting or call 608-620-0596.
Investing in variable universal life insurance involves risk, including the possible loss of principal. More information on this contract’s underlying investments—and their objectives, risks, charges, and expenses—is in the prospectus. Investors should read and consider the prospectus carefully before investing. Guarantees are based on the claims-paying ability of the issuing company. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Seek the services of an appropriate professional regarding your individual situation.