27:["$","$L28",null,{"category":"$29","relatedArticles":[{"id":"cG9zdDoxNDU0OTU=","databaseId":145495,"postId":145495,"author":{"node":{"id":"dXNlcjoyOA==","databaseId":28,"userId":28,"avatar":{"url":"https://secure.gravatar.com/avatar/c2129e3c852ac8063af4562fe9605e22?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children. Rebecca also holds the Certified Educator in Personal Finance (CEPF®) designation.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Rebecca","fullName":"Rebecca Lake, CEPF®","lastName":"Lake, CEPF®","name":"Rebecca Lake, CEPF®","postCount":{"pageInfo":{"offsetPagination":{"total":1252,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"rlake","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybTo0NzIy","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":{"pageInfo":{"offsetPagination":{"total":76,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$2a","date":"2021-11-10T15:09:59","excerpt":"

\n","featuredImage":{"id":"cG9zdDoxNDY5NzU=","databaseId":146975,"altText":"Drawing of an umbrella protecting a family","date":"2021-10-13T12:55:33","fileSize":26535,"mimeType":"image/jpeg","modified":"2021-10-13T12:55:52","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2021/10/insurance-concept-picture-id963121676-2.jpg","__typename":"MediaItem"},"modified":{"datetime":"2021-11-10","readable":"November 10, 2021"},"multipleBylinesByRole":{"editedBy":null,"reviewedBy":null,"writtenBy":null,"factCheckedBy":null,"secondEditor":null,"hideAuthor":null,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/life-insurance/variable-universal-life-insurance-pros-and-cons","metaDesc":"Variable universal life insurance can help you build wealth while providing a death benefit to loved ones. Learn the pros and cons of this insurance option.","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":6,"title":"Variable Universal Life Insurance: Pros and Cons - SmartAsset","__typename":"PostTypeSEO"},"slug":"variable-universal-life-insurance-pros-and-cons","status":"publish","title":"Variable Universal Life Insurance Pros and Cons","uri":"/life-insurance/variable-universal-life-insurance-pros-and-cons","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":{"id":"dXNlcjoyOA==","databaseId":28,"userId":28,"avatar":"$2b","description":"Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children. Rebecca also holds the Certified Educator in Personal Finance (CEPF®) designation.","additionalMeta":"$2c","email":null,"firstName":"Rebecca","fullName":"Rebecca Lake, CEPF®","lastName":"Lake, CEPF®","name":"Rebecca Lake, CEPF®","postCount":"$2d","slug":"rebecca-lake-cepf","__typename":"User"},"editedBy":null,"reviewedBy":null,"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybTo0NzIy","children":"$30","databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":76,"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"},"isModifiedBeforePublished":true,"contentBlocks":["

Variable universal life insurance is permanent life insurance that offers coverage for as long as you live while your premiums are paid. Once you pass away, your beneficiaries can collect a death benefit assuming the policy is paid up. You can also accumulate cash value on the policy that you can borrow against during your lifetime. That’s an advantage you won’t get with term life insurance or some permanent life insurance options. But it’s important to understand variable life insurance pros and cons before purchasing a policy. A financial advisor could provide valuable insights as you consider what kind of life insurance to buy. Let’s compare the pros and cons of variable life insurance.

","

Variable Universal Life Insurance Defined

","

Variable universal life insurance is permanent life insurance that can accumulate cash value. You can purchase a variable universal life policy and as long as you pay premiums, your policy remains in effect. That’s different from term life insurance, which only covers you for a set time period.

","

When you purchase a variable universal life insurance policy, you select a death benefit amount that fits your needs. The insurer agrees to cover you in exchange for regular premium payments. Your premiums are based on a number of factors, including the size of the policy, your age, gender and overall health. As you pay in premiums to the policy, you can accumulate cash value over time.

","

You can then choose how that cash value is invested inside the policy. The cash value can be invested through subaccounts that function similarly to mutual funds. The variable part comes into play because the return on those investments can vary. That means the better your investments perform, the higher the returns you can earn. With a whole life insurance policy, on the other hand, cash value accumulation is typically set at a fixed rate of return.

","

As the cash value in your policy increases, you can begin applying it toward your policy premiums. This means you have to pay less out of pocket to maintain your coverage and your death benefit remains unchanged. You could also choose to borrow against the policy’s cash value or withdraw it if necessary.

","

Assuming that you leave the cash value untouched, your beneficiaries would receive the policy’s full death benefit amount once you pass away. Like proceeds from other types of life insurance policies, you’d be able to pass this benefit on to them tax-free.

","

Variable Universal Life Insurance: Pros and Cons

","

","

Variable universal life insurance has some attractive features, particularly when you compare it side by side to other kinds of life insurance, that has made it a popular choice. But it’s not right for everyone’s needs or financial situation. Looking at both the pros and cons can make it easier to decide if it fits into your financial plan.

","

Pros:

","$32","

Cons:

","$33","

How to Buy Variable Universal Life Insurance

","

If you’ve weighed universal variable life insurance pros and cons and decided it’s right for you, purchasing a policy is the next step. First, you’ll need to decide how much coverage you need. Using a life insurance calculator at this stage can help you to come up with a reasonable number.

","

From there, you can begin comparing coverage options from different insurance companies. It may be helpful to get free quotes online to get a sense of what you might pay in terms of premiums and fees for different variable universal life insurance policies.

","

Remember that you may be required to complete a medical exam as part of the underwriting process. If a medical exam is necessary, you may be able to schedule it to take place at your home, workplace or in a doctor’s office. The results of this exam, along with other details about your health, occupation and hobbies, are used to determine your premium rates.

","

Also, consider what you’ll be able to invest in when comparing policy options. If you’re able to get specifics on the underlying investment portfolio associated with a particular policy, it can be helpful to look at the performance and cost of those investments. This can help you decide if they align with your risk tolerance and goals.

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Bottom Line

","

","

Variable universal life insurance could offer cash value accumulation and consistent returns over time. The tax-free death benefit you can leave behind for your beneficiaries is also a nice incentive to consider this type of coverage, of course. Regardless of whether you choose this or another type of life insurance, having a policy in place can provide financial peace of mind for you and your loved ones.

","

Life Insurance Tips

","$34","

Photo credit: ©iStock.com/Jirsak, ©iStock.com/kate_sept2004, ©iStock.com/FatCamera

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","

An important part of estate planning is deciding who will get your assets when you pass away. This means naming primary and contingent beneficiaries on important accounts such as your life insurance policy and retirement account. But what do these terms even mean, and what’s the difference between a primary and contingent beneficiary? Consider working with a financial advisor to ensure that your estate planning is coordinated with your investment plans.

","

What Is a Primary Beneficiary?

","

Put simply, a primary beneficiary is a person you want named as first in line when it comes to receiving certain assets and benefits upon your death. You will typically be asked to name a primary beneficiary on accounts such as:

","

Life insurance policies
Retirement accounts (401(k)s, IRAs and 403(b)s)
Bank accounts
Annuities
Other Payable on Death (POD) or Transfer on Death (TOD) accounts

","

When you pass away, your primary beneficiary will receive the applicable assets for which they are named. For example, if you have a life insurance policy, your beneficiary will be sent your policy’s benefit after your death.

","

A primary beneficiary can be one person or multiple people, such as all of your adult children. Primary beneficiaries can even be an account such as a revocable trust, living trust, charity or another legal entity. Just note that if you name more than one person as the primary beneficiary for a particular asset, the asset will be split equally between them, unless you designate a specific percentage split when establishing the account.

","

What Is a Contingent Beneficiary?

","

A contingent beneficiary is your backup beneficiary, or the second in line. If your primary beneficiary passes away before you, cannot be located, or refuses to accept the asset in question, it will generally pass to the contingent beneficiary.

","

It’s important to note that the only way a contingent beneficiary inherits anything is if the primary beneficiary is unavailable or unwilling to inherit the account. If you want to ensure that someone inherits a portion of your assets, naming them as a contingent or secondary beneficiary is not sufficient.

","

Primary vs. Contingent Beneficiaries

","

It’s always wise to name both a primary beneficiary and a contingent beneficiary on any important account you have, such as a life insurance policy. Doing so can help your assets bypass the probate system, which can be time-consuming and costly for your loved ones. Instead, with primary and contingent beneficiaries, you’re able to name specific heirs for certain accounts. A portion of your estate may still go before the probate courts, depending on your asset structure. However, named beneficiaries can help to simplify your estate plan for specific assets.

","

Naming a primary beneficiary isn’t enough, though. If your primary beneficiary were to pass away before you — or even at the same time as you, such as in a car accident — the assets in question would go back to your estate and be subject to probate.

","

This court system will then determine which of your heirs get what. Their decision may or may not be in line with your personal wishes.

","

If your primary beneficiary cannot be located, or refuses to accept the asset that you left to them, you’ll need a contingent beneficiary in place as a backup.

","

Rights of the Primary and Contingent Beneficiary

","

Neither your primary beneficiary nor your contingent beneficiary have any claim to your property while you are still living. Their assumption of the asset only comes into play after you have passed away.

","

A contingent beneficiary has even fewer rights, and does not inherit anything upon your death. The exception is if any and all named primary beneficiaries have passed away, are missing or refuse to accept the asset. Then and only then does the contingent beneficiary factor in.

","

Bottom Line

","

A key part of any financial plan is determining who will get your assets when you die. Whether you have a life insurance policy, certain retirement accounts or even bank accounts, you’ll want to name primary and contingent beneficiaries as the inheritors when possible. Your primary beneficiary is the first in line, with the contingent beneficiary only coming into play if the primary beneficiary is unavailable.

","

Tips on Estate Planning

","$3d","

Photo credit: ©iStock.com/shapecharge , ©iStock.com/Piotrekswat, ©iStock.com/Jirsak

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Life insurance is often regarded as financial protection for surviving family members after a policyholder’s death. But depending on the type of policy you have, you may also benefit from your coverage while you’re alive. You could potentially take a loan from your policy, withdraw the cash value it’s accrued over time, use a living benefit rider or sell your policy.

","

A financial advisor can help you integrate a life insurance policy into your financial plan. Find an advisor today.

","

Each option has its benefits and drawbacks, but it’s helpful to understand how you could use your life insurance while you’re alive in case the need ever arises. Here’s what to know about your options.

","

Take a Loan or Withdrawal From Your Policy

","

","

It may be possible to take a loan or withdrawal from your policy if you have permanent life insurance with accumulated cash value. Many whole, universal, and variable life insurance policies provide these options.

","

Taking a loan from your life insurance policy involves borrowing against its cash value. This option is generally only available if you’ve been paying your life insurance premiums for several years, as it takes time for your policy to start accruing cash value. Life insurance loans typically have a lower interest rate than personal or home equity loans, and repaying them may be optional.

","

A loan can be a smart option if you need cash, but also want to repay your loan to retain your full death benefit. You can choose not to repay it, but there’s a downside: Your death benefit may be reduced by the amount you borrowed plus accumulated interest.

","

In certain cases, you may also be able to withdraw your policy’s cash value. The amount withdrawn may not be taxable, assuming it’s less than what you’ve contributed to the policy. While a tax-free withdrawal may be useful for covering a large expense or supplementing your retirement savings, it will generally reduce your total death benefit. This can be a drawback, depending on your financial situation.

","

Use Your Cash Value to Pay Premiums

","

If your policy allows it, you could also use your accumulated cash value to offset the cost of your premiums. But this is generally only an option with permanent life insurance policies, not term life coverage.

","

Still, it can be beneficial if you’re on a fixed income. For instance, many retirees opt to tap into the cash value of their coverage to pay for premiums, as doing so allows them to retain their life insurance while also keeping costs low.

","

Use Your Living Benefit Rider

","

","

Some insurers offer a living benefit rider on eligible policies. This type of rider allows you to get a portion of your death benefit early if you’re diagnosed with a terminal illness and have a life expectancy of less than a year. Accessing your death benefit early can help cover the cost of medical expenses associated with your illness, and may provide access to palliative care options that would’ve been unaffordable otherwise.

","

Living benefit riders often come standard with certain policies, but a fee may apply when you exercise this benefit. Despite this, tapping into a living benefit could be worth it if it results in significant savings on medical costs.

","

Sell Your Policy

","

While it might not be worth the trouble or the cost, selling your life insurance policy may be another option if you need cash. If you decide to go this route, you can do so through a reputable broker, but expect to pay broker fees. Depending on the broker, your fees may be up to 30% of the profit from the sale. You’ll also need to pay taxes on the amount you receive. And you won’t get your full benefit amount when you sell your policy, either. The percentage you get may depend in part on the broker you use.

","

Selling a life insurance policy, commonly called life settlement, is generally considered a last resort for policyholders that can’t afford their coverage any longer. It’s typically not recommended if you can access your policy’s cash value another way or find another source of funding.

","

The Bottom Line

","

While life insurance does pay out a death benefit when you pass away, you could also use your policy while you’re alive in certain cases. You may be able to withdraw accumulated cash value, take a loan against your coverage, access a living benefit rider or sell your policy. But selling your policy is generally only recommended if you’ve exhausted all other options, as doing so will cost you in fees and tax payments.

","

Tips for Buying Life Insurance

","$46","

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The idea of guaranteed life insurance is an appealing one. Who doesn’t like the sound of a guarantee? Plus, guaranteed life insurance doesn’t require a medical exam during the underwriting process, making it an enticing option for the elderly and people in poor health. But before you go seeking out life insurance quotes, let’s review the details of guaranteed life insurance.

","

Get life insurance quotes.

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Guaranteed Acceptance Life Insurance: The Basics

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We usually think of life insurance as a product designed to cover young and middle-aged people who have jobs and families, replacing the policyholder’s income. Guaranteed life insurance, by contrast, is often marketed to seniors. Older folks might worry about leaving their kids with the burden of paying for a funeral, or they might want to create a modest inheritance through a life insurance policy. Alternatively, they may be drawn to the advertising campaigns for guaranteed life insurance, which feature smiling silver foxes.

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Guaranteed acceptance life insurance offers coverage, but not much of it. Applicants generally won’t be able to get six-figure policies (for that kind of coverage, you’ll need to submit to a medical exam). With its low death benefits, you might think that guaranteed life insurance would come with low premiums, too. Not so. Premiums for guaranteed life insurance tend to be high, and can even top the value of the death benefits over time. That’s a big drawback.

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Find out now: Do I need life insurance?

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Turned Down for What?

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Life insurance companies market guaranteed issue life insurance policies by promising that all applicants are guaranteed to have their applications approved. In practice, it’s more like “most” applicants. For example, folks living with HIV/AIDS will have their applications turned down, as will those who have been diagnosed with a terminal illness, or who are currently receiving long-term in-home or institutional care.

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Life insurance companies assume that the people who want guaranteed life insurance are old and/or unwell, and so are more likely to pass away, triggering a payout. That’s why the premiums are higher, and why people with some of the highest mortality risk aren’t eligible for coverage.

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The Contestable Period

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If a policyholder dies within the first two years of coverage, the insurance company might not pay the policy’s death benefits. This two-year window is known as the contestable period because it’s an opportunity for the insurance company to contest a payout. Another name for it is the exclusion period. Some policies explicitly state that a death within two years will trigger return of premiums and not a payout.

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If a policyholder passes away during the exclusion period, the insurance company will usually want to review the policyholder’s medical records for the preceding two years. It’s not always easy for policyholders’ children to supply those records, though, so death benefits sometimes go unpaid. If an insurance company decides not to pay out death benefits, they’re required to return the premiums already paid.

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In some cases, if a policyholder dies during the contestable period, the insurance company may return the value of the premiums paid, plus a portion of the death benefits. This portion will increase as the policy matures.

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Find out now: How much life insurance do I need?

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Is It Worth It?

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Guaranteed life insurance comes with some risks. What do we mean by that? Well, there’s the risk that the premiums paid will top the value of the death benefits. Then there’s the risk that the policyholder will pass away during the contestable period and the insurance company won’t pay out. Finally, there’s the risk that a customer could pay more for guaranteed acceptance life insurance than he or she would for regular term life insurance.

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Before committing to guaranteed life insurance, consider applying for regular term life insurance, complete with a medical exam. Even if your health isn’t perfect, you could still find an affordable policy that meets your needs. You have nothing to lose by shopping around, right?

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Our advice: don’t assume that a costly guaranteed issue life insurance policy is your only route to coverage. Instead, consider guaranteed life insurance to be a fall-back plan. And remember that if no one is dependent on your income, you don’t have any shared debts and you have enough saved in your estate to cover final expenses, you might not need life insurance at all.

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It’s a good idea to sit down with the person or people who would be your life insurance beneficiaries and go over your finances. Your heirs might tell you they could cover your final expenses among them without breaking a sweat, letting you off the hook for life insurance.

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Another advantage to having a financial sit-down with your family is that it fosters transparency. Many people designate beneficiaries for life insurance but fail to notify the people they have chosen. It’s an oversight that helps explain the millions of dollars in unclaimed property in each state. Don’t let your policy end up in limbo.

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