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Variable Universal Life Insurance
Variable life was introduced approximately 25 years ago with the simple concept of allowing the cash value portion of the product to be invested into a managed separate fund of either equities, bonds or a combination of the two. The major philosophical change represented here was that for the first time in history the company was not guaranteeing a specific performance of the underling cash value of a contract. There was no guaranteed interest rate credited to reserves.

Leaving alone the benefits and/or dangers of having a variable fund perform the task of providing the cash reserve in a contract, the introduction of this type of contract put all of the investment risk for the viability of the contract on the performance of an investment account rather than crediting funds with a stated albeit fluctuating interest rate. Rather than the company having the risk of investment performance, the insured/owner now assumed all the risk for the financial viability of his contract.

As with any investment plan, as long as the market performed well everyone was happy. However, as the market inevitably went through the ups and downs of business cycles, values changed and policies once viewed as safe became vulnerable to lapse, premium increase and loss.

From strictly a cost of insurance and profitability standpoint the company was unaffected by the volatility of the market because they were deducting an ever increasing cost of insurance factor and an expense cost every month from the value of the contract. As the insured ages, the cost of insurance increases due to the increasing probability of death with age and the company had reserved in the contract the ability to increase the cost per thousand of insurance up to the maximum stated in the contract .

Available investment options varied with company, however today most carriers offering variable contract have a large menu of investment choices. They attempt to offer a suitable option for virtually all stages of life and all levels of risk tolerance.

The marketplace appeal of variable contracts is significant for two reasons. First, these contracts offer an insured the option to combine his insurance needs with the opportunity to have a growing fund from which he can draw. Second, if all goes according to plan, there is the possibility of having the growth in the fund value pay for his insurance and thus eliminate the need to pay additional premiums. It should be noted that good plans do not always work out.

These types of contracts represent a very sizable portion of the permanent policies sold in the United States today.