Understand the ins and outs of universal life insurance

How to know whether universal life insurance is necessary is addressed

Q: I am going to be purchasing life insurance to protect my family in the event of premature death. Several of my colleagues have told me to look into a variable universal life policy. How does that type of policy typically work, and should I consider purchasing it?

Although most of these policies were purchased to provide death benefits, physicians also purchased this type of policy to build cash values to provide emergency funds, funds for their children's educations, or supplemental retirement income. Unfortunately, the majority of these purchasers were unaware of the effect that stock market volatility has on the performance of a variable universal life insurance policy.

With such a policy's lack of guarantees, many potential problems are associated with variable universal life insurance that can cause policies to fall apart. At best, one might consider it as an investment with a limited amount of insurance protection. For this reason, based on the objective you describe, you should avoid a variable universal life insurance policy.

Send your money management questions to memoney@advanstar.com. Answers to our readers' questions were provided by Lawrence B. Keller, CFP, CLU, ChFC, founder of Physician Financial Services, a New York-based firm specializing in income protection and wealth accumulation strategies for physicians.