How to Buy Variable Universal Life Insurance

If you don't mind the market risks, consider a variable universal life insurance policy (VUL) that lets you invest your cash values in mutual funds.

Instructions

Difficulty: Moderately Easy

Things You’ll Need:

• Calculators
• Life Insurance

1. Make sure you are the kind of person who can be comfortable with the ups and downs of market fluctuations. "Variable" means the returns of invested cash values and the death benefit they support are not guaranteed, and "universal" means the policy has a high level of flexibility.
2. Go through the appropriate steps to determine if you need life insurance and, if you do, how much you need.
3. Get recommendations from trusted friends regarding the choice of a qualified and experienced life insurance agent.
4. Interview the insurance agent to make sure he or she is knowledgeable about variable insurance contracts and capable of shopping the market for you.
5. Choose an insurance company that has consistently received high ratings from major rating services, such as AM Best, Standard & Poors, Moody's and Duff & Phelps.
6. Take the time to study the prospectus your agent gives you and pay close attention to the investment goals of the available funds and their respective management fees (which will be deducted from your cash values).
7. After being successfully underwritten, allocate your premium payments and cash values in the policy's "separate account" according to your risk tolerance and general investment objectives.
8. Apply the same, sound investment practices with your cash values as you would other types of equity accounts.

Tips & Warnings

• Because the management and risk of investing cash values is transfered from the insurance company to the owner of the policy, a VUL policy may have lower initial premiums than those of a traditional whole-life policy with the same death benefit.
• Most insurance companies will let you re-allocate the money in your cash values several times a year at no cost.
• After several years of premium payments and positive returns, it may be possible to skip an entire year's premium payment or eliminate premiums altogether.
• The death benefit is adjustable downward; with an extra-cost rider, some policies' death benefit can be adjusted upward.
• Variable universal life insurance policies are complex financial instruments and involve significant risk - definitely not for the financially squeamish or those who like to "set it and forget it."
• Mutual funds for insurance policies may have identically named retail counterparts, but they are not the same mutual funds and may achieve higher or lower returns than the retail mutual funds.
• In a way, with this type of policy you are depositing money (premiums) into mutual funds, and that deposit, and the gains thereof, fund the death benefit for your beneficiary; so, if deposits don't achieve a gain or have a negative return over several years, you may need to increase your deposit (premium) to keep the death benefit up.
• Avoid borrowing from a newer variable universal policy as you may trigger the need for an increased premium to keep the full death benefit funded.