Protect your future with variable universal life (VUL) insurance

When it comes to creating a sound financial plan, a comprehensive approach can offer an effective mix of strategies to help you meet your goals. A solid foundation begins by addressing your day-to-day cash management needs, along with protection and risk management considerations.

Making sure you have appropriate solutions in place can help you stay financially on track and avoid depleting your assets if an unexpected event occurs.

Life insurance protection

Life insurance can help provide financial stability and security to your beneficiaries in the event of your death. It can offer your family a level of protection by replacing your income and allowing the financial plans you established stay on track after you're gone.

Payments can also be used to cover daily living expenses, mortgage payments, outstanding loans, college tuition and other essential expenses, and are rarely subject to federal income taxes. Depending on the type of insurance, you may also be able to accumulate wealth and create a retirement income stream with potential tax advantages.

There are two basic types of life insurance protection:

• Term insurance can help you meet short-term protection needs for a specific period of time. When the term is over, your coverage ends. Designed for temporary circumstances, term insurance pays only a death benefit. Typically, term insurance offers the greatest amount of coverage for the lowest initial premium and is a good choice for young families on a budget.
• Permanent insurance can help you meet protection needs for a lifetime, can provide additional retirement and estate planning benefits, and allows you to accumulate cash value over time on a tax-deferred basis. Initial premiums are usually initially higher than a term premium, but are often more economical over a life time compared to term. Some types of permanent protection include whole life, variable life, universal life and variable universal life.

Understanding variable universal life (VUL) insurance

One type of permanent insurance — VUL — is becoming an increasingly popular option for people seeking a versatile, long-term insurance solution.

In addition to providing a valuable death benefit, a VUL policy can serve as an alternative investment vehicle. In most VUL products a portion of the premium goes to a sales load, but most of it is invested in a variety of variable investment options including stocks, bonds, balanced, international and money-market portfolios. The cost of the insurance is deducted from these variable investments, called subaccounts. Any remaining balance remains in the subaccounts and will continue to grow or fluctuate based on the subaccount investment portfolio's performance. This unique feature provides long-term investment options and offers an insurance solution with versatility.

VUL offers:

• Tax-free death benefit. A VUL policy can help you pass on more of your hard-earned dollars to your loved ones at the time of your death. The VUL policy will pay an income-tax-free death benefit directly to your beneficiaries, bypassing the potentially costly and time-consuming delays associated with probate.
• Accumulation opportunities. The breadth of available policy options help you choose from a wide variety of variable subaccount options from well-known fund companies. This allows you to choose investments that are in line with your goals, time frame and risk tolerance.
  A fixed-interest account is among the options available for a portion of your cash value. It provides an opportunity to potentially reduce risk in your account with a guaranteed rate of return — usually at a competitive interest rate.
  Investment returns can be affected by many factors, including market fluctuations, changes in interest rates and the performance of individual companies. It's important to remember that a diversified portfolio can help you balance risk, making it less likely that you will suffer from the poor performance of a single investment option.
• Flexibility to move between investments. You can move between variable subaccount options and/or a fixed-interest account without incurring any capital gains taxes or transaction fees. This enables you to easily respond to changing needs and market conditions and potentially reduce risk. By regularly reviewing your policy's portfolio with your financial advisor, you can help ensure that your investment choices are well suited to your goals and objectives.
• Tax-deferred growth and tax-free withdrawals.
  The money in your cash value account grows tax-deferred, allowing you to potentially build cash value more quickly. As long as the policy is adequately funded, you can take tax-free withdrawals from the policy's cash value account as needed for emergencies, education funding, supplemental retirement income and other goals.
  Keep in mind that excessive loans and withdrawals can deplete the policy's cash value and cause the policy to lapse. Having a tax-free source of supplemental retirement income can help you balance income from other investments — such as IRAs and 401(k)s — in tax-advantaged ways.

Flexibility to help meet changing needs

Should your insurance needs change over time, VUL provides the flexibility to change your amount of coverage. You may increase or decrease planned periodic premium payments, skip premiums or make additional premium payments within limits. You may also increase (subject to insurability) or decrease your coverage without having to purchase a new policy.

Most variable universal life insurance policies allow you to retain control over decisions affecting the premium, death benefit, cash value, and loan and distribution options. For example, if you are younger, you may want a maximum amount of insurance to help protect a family. Over time, you may decide to increase the cash accumulation to help finance your children's college education and, eventually, your own retirement. In retirement, you may want to use your policy to help provide tax-free supplemental retirement income and to make sure your estate planning goals are met.

Get the appropriate level of protection

Using VUL for income and accumulation goals is a complex strategy — work with your advisor to assess your life insurance needs and determine if VUL is right for you. Your advisor can help determine the right amount and type of life insurance for your financial situation and goals. If you don't have an Ameriprise financial advisor, contact us at (800) AMERIPRISE or search for an advisor in your area.