How Does Variable Universal Life Insurance Work?

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Variable universal life insurance is one of the two main types of life insurance. Find out about how variable universal life insurance works with help from a personal finance expert and professional in this free video clip.

Part of the Video Series: Personal Finance & Life Insurance
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Video Transcript

Hi, this is Walter Pardo. I am managing director and founder of Wealth Financial Partners and WFP Tax Partners in Basking Ridge, New Jersey. Today, we're going to discuss how does variable universal life insurance work. Life insurance has two types, you have term insurance which really is the cheapest insurance out there for a term, for a period of time. Then you have permanent insurance which is cash accumulation, then there's whole life and there's universal life. Universal life, there is a specific type called variable universal life. So what ends up happening is as your money goes in to pay the premium, some of it can be invested in what's known as sub accounts which are sort of like mutual funds that you get to participate in markets up and down. There are events sometimes where your money does so great that you don't have to fund any more premiums. But what happens if the market goes down and sometimes you have to add more money so that policy doesn't go defunct. There is more risk and there is more regulation in the variable universal life space. In fact, you have to be licensed not just in life insurance with the state, you also have to be licensed through FINRA which is requires a series 6 or series 7. So in looking at a variable universal life there are a lot of parameters. There's a lot of higher expenses, there's higher risks, there is some reward if markets do well. So really consult your professional when choosing the right variable universal life for you.

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