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History
Much has been written about the wide variety of uses that Variable Universal Life (VUL) Insurance offers especially the last few years as it's popularity has swelled.
You may have heard VUL called or referred to as various surnames including 'private pension plan', 'private retirement option', 'insurance-based retirement plan', '5x7 Pay Life', or the 'Swiss Army Knife' of financial products.
VUL was first introduced in the U.S. marketplace by Equitable Life in the mid 1970's. It was very slow to develop primarily due to three reasons; 1) the question of how the product was to be governed given it's 'variable' nature; 2) selling agents/brokers were required to hold a NASD securities license; and 3) the longer-than-anticipated educational curve needed in the consumer marketplace.
Briefly, the Securities & Exchange Commission and state insurance commissioners finally agreed how it was to be registered and regulated in 1976 and enacted rule 6E-2. This rule provided the guidelines on how these policies were defined under the Investment Company Act of 1940. And it is for these reasons that VUL plans are offered by a prospectus only.
The first generation of VUL products was (by today's standards) rather expensive products. As time passed, however, product features were enhanced and the chassis became more and more streamlined as investors demanded lower cost plans.
As a result, Variable Life purchases have grown steadily and show no sign of slowing down.
Why the Attraction?
Although very much similar to a whole life or a universal life policy in that you have a stated current and guaranteed death benefit, premium pay in options and cash values, the major difference lies in the control issue and potential earnings power. Of course, the death benefit is based on the claims-paying ability of the issuer.
In a traditional whole life or universal life policy, the customer was (and still is) at the mercy of the insurance company to credit a respectable yield or annual dividend.
Under a VUL contract, the policyholder has complete discretion on how to allocate his or her premiums among the various investment sub-accounts available within the product they own.
For example, many of the more progressive VUL sponsors will allow their policy holders to pick and choose from 20 or more investment sub-account options which are managed by professional fund groups such as Fidelity, Janus, American Century, Oppenheimer, Nationwide, GE, Franklin-Templeton, Putnam and other well-known money management groups.
The underlying portfolio options may include sub-accounts such as:
| Money Market | Bond Funds |
Growth & Income |
Small Cap |
High Income |
Total Return |
International |
Value |
Multi-Strategy |
Growth |
S&P Index |
Fixed |
Balanced |
Emerging Markets |
Focus Growth |
Hard Assets |
Further, the policyholders are typically not restricted from moving in and out of these various sub-accounts based on their personal choices - free of loads, commissions and capital gains.
Income & Estate Tax Advantages
Under current law, if your VUL policy meets the definition of "non-modified endowment" under IRC Section 7702, your policy can potentially enjoy excellent tax advantages not typically found in other investment mediums. These advantages include:
These benefits are all afforded to you providing you keep the contract in force and it is not surrendered.
Who Uses Variable Life?
It is for these reasons, that many high-income professionals including doctors, attorneys, engineers, athletes and private entrepreneurs are using this type of product as a primary or secondary retirement savings vehicle.
Companies are also using these tax-free private retirement plans as a "corporate" retirement plan for key executive, partners, and selected staff members without having to worry about discrimination rules.
How Your Dollars Work
Washington Attacks, The Industry Responds, The Product Benefits Survive!
These tax advantages have attracted both individual and corporate investors by the thousands. In fact, so much so that 3 of the last 4 Administrations, budget proposals took aim at eliminating these benefits virtually altogether.
We appreciated the Washington DC validation -- we always knew the product was a potentially powerful way to save without government interference. In the opinion of the author, it's rather ironic that our legislators keep reminding us not to rely on social security and encourage us to invest for our own financial future. And then by the same token, attempt to legislate alternative retirement vehicles right out of existence.
Largely due to the out-pouring of letters, emails and faxes sent in by policy owners, agents, stock brokers and companies expressing their complete and utter dissatisfaction with this element of the budget package, it died in its tracks and the benefits remain intact.
If you would like to see an example of the VUL policy in action, please contact us by email or phone at 1-800-480-7526. Based on an assumed rate of return, the software packages we have available will illustrate both an accumulation (savings) period and an income period.
The package will also include a prospectus, a complete
listing of the available sub-account options and historical performance numbers. Of
course, past performance is not indicative of future performance.
Action To Take If you would like to learn more about Variable
Life and receive a no-obligation quote, |
FOR FASTER, PERSONALIZED SERVICE CALL 1-800-480-7526.
If you have not registered yourself, please do so now. Registered users will be added to our exclusive BROADCAST E-MAIL LIST, which provides periodic electronic communiqués on the subject of new offerings, cutting-edge investing ideas and newly developed estate preservation strategies.
(Please note: your registration information will not be released to any
other party without your express written consent)
*As reported by the National Underwriter, Sept. 2000.
Barron's Dictionary of Finance and Investment Terms
[variable life]:,"Form of life insurance, first marketed in the early 1980's, that combines the low-cost protection of TERM LIFE INSURANCE with a savings portion, which is invested in a tax-deferred account earning money-market rates of interest. The policy is flexible; that is, as age and income change, a policyholder can increase or decrease premium payments and coverage, or shift a certain portion of premiums into the savings account, without additional sales charges or complications. A new form of the policy called universal variable life insurance combines the flexibility of universal life with the growth potential of variable life. "
Copyright © 1998
Fielder Financial Management, LTD.
All Rights Reserved.
Securities are offered through Girard Securities, Inc.
member FINRA, SIPC.
Mark R. Fielder, Registered Principal. CA. Insurance Lic. # 0690576.
Disclosure: For more complete information about variable life, including charges and expenses, obtain a prospectus by calling 1-800-480-7526. Read it carefully before you invest or send money. Investment return and principal value of an investment will fluctuate. An investors units, when redeemed, may be worth more or less than their original investment. Consult your tax advisor.
Above, the information mentioned two (2) other types of insurance policies: traditional whole life and universal life. In the context of this information, these two (2) types of policies are of the fixed yield or fixed annual return nature. These types of insurance contracts are not offered by a prospectus and are not governed by the NASD or SEC. However, so the reader of this page better understands, in these types of policies the COI's, mortality & expense fees, the administrative costs, the distribution costs, any applicable flat extras or table rating, commissions, et. al. are 'bundled' and generally not explicitly definable. In contrast, a VUL policy is an 'unbundled' insurance plan for which any consumer may clearly define what these types of expenses associated with the product are. AS NOTED ABOVE, please read the prospectus. It will contain all charges, expenses and risks.
