Q&A: Is universal variable life insurance too risky?

Q&A: Is universal variable life insurance too risky?

3 Jan , 2012  

I’ve read a little on universal variable life insurance and it seems like this type of policy is too risky for the average person. Is this true or am I misinformed?

Having insurance is one of the most reliable ways of protecting your financial interests in cases of adverse events. However, choosing and buying the right insurance for yourself is not easy because there are just too many types of insurance policies that are available on the market.

The best approach to use in deciding which particular type of life insurance you must buy is to compare life insurance quotes closely by reviewing the policies side by side. If you give prime consideration to your present financial status, you can narrow down your choices to those with premium rates you can afford.

You can then compare the features of each package and the benefits they give. This is the only way you can get the most from your premium payments. With the right life insurance, you can have that peace of mind and confidence that you are financially able to meet what ever comes in the future.

How Universal Variable Life Insurance Works

Among the different forms of life insurance policies, you may want to consider the universal variable life insurance for your own coverage. In case you are not familiar with it, the universal variable life insurance is both an investment tool and an insurance coverage.

With universal variable life insurance, you are investing your premiums in the stock market while enjoying the protections of a life insurance policy at the same time. Like any life insurance, the universal variable life insurance pays out death benefits to the beneficiary named in the policy.

It also has a cash value. However, the cash value of universal variable life insurance is dependent on the performance of the investments as selected by the policy holder.

The universal variable life insurance was introduced to the US market 25 years ago. Since then, policy holders have had their choice of securities to include in their portfolios. Investments can be made on government bonds, domestic or international equity accounts and in various company stocks.

Do remember that this type of insurance has two components – investment and insurance. The funds for investment are taken after the premium payments have been subjected to the required charges for the insurance component.

Advantages and Disadvantages of Universal Variable Life Insurance

Compared to the other life insurance policies, universal variable life insurance is perhaps the one plan that carries the most risks. To help you decide on its value as an investment opportunity, you may want to weigh its advantages and disadvantages.

A positive aspect of the universal variable life insurance is its flexibility when it comes to premium payments. This feature will help you make easy changes to your policy to adapt to your changing needs. As a general rule, payments are flexible as long as the cash value remains sufficient to meet the monthly charges for the insurance component of the policy.

While the policy holder may feel that he is more actively involved in the management of his investment funds, this can also be considered as a disadvantage. As the policy holder assumes the responsibility for choosing among the investment options, he frees the insurance company from having to make the investment decisions. Associating your life insurance policy with the unknowns of investment decisions can bring some uncertainty.

If in your assessment there are more advantages than disadvantages despite the presence of investment risks, then the universal variable life insurance policy might just be the right choice for you. Many experts suggest that this type of life insurance is best suited for those who can afford the risks involved (i.e. financially secure indivuals). When, comparing life insurance policies, it is best to keep an open mind and consider all possible options. The best choice for you will be clear after a thorough review more often than not.

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