Are you trying to decide between a whole life insurance policy or a variable universal life insurance policy? Although both types of insurance are considered to be a permanent form of life insurance, there are pros and cons associated with both types of insurance coverage. Therefore, it is important for you to explore these pros and cons in order to determine which type of permanent life insurance is best for you.
Choosing Your Own Investments
One of the benefits of purchasing a variable life insurance policy, or VUL, is the fact that you are able to invest your money wherever you like. In fact, you have the option to invest in separate accounts with varying values. In addition, you have the flexibility to determine how much you invest toward your premium each month, ranging from paying nothing to paying as much as the IRS allows.
A whole life insurance policy, on the other hand, establishes a fixed premium payment amount and does not allow you the flexibility to determine how your funds will be invested. For those who want to make their own investments, this is a definite disadvantage to whole life policies. For those who are not comfortable with handling their own investments or who want a guaranteed rate of return, on the other hand, a whole life policy is the better choice.
No Endowment Age
Another benefit to VULs is the fact that there is no endowment age. With most whole life insurance policies, the endowment age is set at 100-years-old. With this endowment age in place, the amount of the death benefit is limited
to the face value of the policy. Once you reach the endowment age, the face value is all that your beneficiary can receive when the policy is paid out. The insurance company, however, gets to keep the cash value that has built up within the policy over the years. Although some insurance companies do offer riders that prevent this from happening and insure your beneficiary receives all of the policy's dividends, you don't have to worry about this issue when you have a VUL. This is because the death benefit from a VUL is the face amount a swell as the cash value that has been built up.
Take Advantage of Tax Breaks
If you enjoy getting tax breaks, obtaining a variable universal life insurance policy is something you should certainly look into. In fact, you can take advantage of certain tax advantages when you have one of these policies. For example, you can receive investment returns through your policy without having to pay income tax if the policy remains in force and meets the IRS's definition of a life insurance policy.
The bottom line is that you can really enjoy some great benefits when you choose to purchase a VUL rather than a whole life insurance policy. At the same time, if you are uncomfortable with making investments or with taking advantage of tax breaks, this might not be the right policy for you. Similarly, if you will only need to have the policy in place for a certain amount of time, you might be better served by a term life insurance policy rather than a permanent policy.