A variable life insurance policy commonly known as a VUL policy, is a hybrid between mutual funds and permanent life insurance. The policy offers great customization to the holder, but it comes with greater risk than other types of insurance. Even more, VUL is the most complex type of insurance because it is affected by many positive and negative factors. It is for this reason that such a policy is sold by licensed agents only who work for companies that have been specifically designed to sell the policies by their states.
The policy is like the permanent life insurance policy that has a death benefit towards it, paid out upon the death of the policyholder. It is also similar to whole life insurance policy, in that the cash builds up over the life of the policy, only that unlike whole life policies, VUL considers the death benefit as the face value of the policy on top of any cash built up above the face value over the policy's term. Some people consider the VUL as savings plan or a retirement plan similar to mutual, since it is tied to market values and flux.
Types of function for a VUL policy
The VUL insurance has three primary functions and these are:
· The life insurance function: provides the death benefit when the cash value is enough to cove the amount.
· The universal function: allows the premium payments to be flexible and can range from zero to the greatest value set by the Internal Revenue Service
· The Variable function: enables the policyholder to invest money in different accounts with different values, because of the ties to bond or stock markets.
What are the features of a VUL policy?
The VUL policy has a number of features including tax advantage or a tax-deferred feature. This implies that if the policy is highly funded. The policy cost can be offset by tax benefits. In addition, the policy's cash values can fund your children's education particularly if you have started the policy in the children's early lives. The VUL can also aid a family during a financial crisis especially after premature or sudden death. It can also become a source of income after retirement mainly because of the tax-free feature, but this is only possible if the retirement will not take place in the immediate future.
From these features you can see that VUL has a good some benefits about both financial and tax issues. These include deferment income tax on any gain in the account value, allowance to borrow or withdraw money from the policy during a policyholder's lifetime and the ability place premiums with various investment options.
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