YOU ASK:

Is a variable universal life insurance policy considered a good investment?

WE ANSWER:

Although most variable universal life policies are sold for investment or tax shelter, buying such a policy is rarely a good idea, as it incurs great investment risks that fall entirely on the policyholder.

The fact that your rate of return is largely dependent on external market conditions, makes buying a variable universal life insurance policy equivalent to gambling.

What is a Variable Universal Life Policy

What distinguishes variable universal life policies (VUL) from traditional life insurance is the fact that the policy owners are allowed to direct the cash value of their policies to investments of their choice, instead of having the insurance company decide on the interest rate the policyholders will earn.

The policyholder can place the cash value into a number of separate accounts that operate in a manner similar to mutual funds. The money is your cash value account can also be invested in stocks or bonds, thus giving you a greater opportunity for investment growth.

Characteristics of VUL

Every policy owner can select where to invest their premiums, choosing between ten separate accounts which operate like mutual funds.
There is no minimum interest rate or cash value guarantee, thus you have the potential for loss as well as the potential for gain.
The investment returns are reduced and favorable income-tax treatment that variable life policies enjoy, are offset by the relatively high expense charges.
Variable universal life insurance is a leap in the dark: there is a substantial investment risk that falls entirely on the policyholder. Investment returns vary widely. If the investment experience is poor, the cash value can decline to zero. The policyholder may even have to pay additional premiums if there is a severe crisis in the stock market.

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