Investing in Variable Life Insurance During the Pandemic

Insurance applications are on the rise since the coronavirus pandemic hits. It’s the complete opposite of succumbing to the financial stress the crisis brought, as skeptics initially thought. None of us have prepared for the extent of this uncertainty. But there’s a change of perception—people are keener on investing their hard-earned money in products that leverage their financial capabilities.

When emergency funds and savings have all been exhausted, and some have to contend with skyrocketing hospital bills, individuals realized how preventable a financial disaster could be. Only if they know where to put their money to grow and maximize the returns. Many financial instruments can help us with this matter.

The key lies in choosing where to invest your money wisely when buying an insurance product. Think of it as a worthy investment since you expect a return, though not all insurance products are investment-linked. One product is variable life insurance or variable unit-linked (VUL) insurance, which is considered the most competent investment today. This type of insurance combines insurance and investment into a single policy.

What is variable life insurance?

Variable life insurance is permanent life insurance, providing your beneficiaries with death benefits and building cash funds. The insurance protects you—the policyholder—throughout your life. Your beneficiary will receive a specified amount upon death.

A portion of the premium is invested in mutual funds, giving you potentially strong returns on the investment. Not only mutual funds, though, but also stocks, bonds, and other securities. This explains the fluctuations in cash value over time, considering the volatility of the market.

Since this policy builds wealth over time, the cash value can be used for a big-ticket purchase such as your dream house, dream car, or dream vacation. That’s on top of the protected income when you suddenly lose your job or fund for education or retirement.

Variable life insurance products are customizable to the needs of the policyholder. Nonetheless, the more features are included, the higher the premium. Premium payments may also change as the insured ages. This policy is payable in 5, 10, or 20 years.

Other things to remember when investing in a VUL

Understand what you are getting yourself into. Look up for terminologies that you are not familiar with. Ask your insurance agent about these terms. While at it, you may ask for additional advice on why on this policy is appropriate for your financial status and plan.

Next, figure out how much you can afford against what features you need. Each policy has varying features, so it pays to inquire abot them. Variable policies, like other insurance products have fees and expenses. Ask about them too since they can get confusing at first. It is important to know what part of the premium is going to which fees or payments.

VUL is not a short-term investment, and there are investment risks involved. Poor investment performance may affect cash value. When the market up, there is an expected opportunity growth. But when it is down, the cash value will manifest the policy’s performance. Worse comes to worst, you may lose the initial investment and all value the policy has built overtime.

While at it, the policyholder must maintain a sufficient cash value. It acts as a buffer when you cannot pay for premiums, that when you do, substantial fees still apply. Insufficient value to cover these fees may cause the VUL to lapse or terminate. Ensure that the policy is well-funded because it is the only way to maximize its cash value growth.

Make adequate premium payments, especially when the insurance market offers poor investment returns like this pandemic. Paying less than what you need to will impact the incurred cash value that would be made available to you when you need it in the future.

Finally, monitor the VUL’s performance. Through this, you’d be able to reassess and rebalance the fund allocations. You should only take risk that you initially planned for, and nothing more.

When looking to leverage your hard-earned money, a long-term investment horizon is important. Variable life insurance is the answer. You may not know but if another extensive crisis happened—heaven forbid—you are 100% financially prepared. No one can’t diminish the value of being prepared.