Can I convert my variable universal life insurance policy into a fixed rate account?
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Asked July 3, 2012
Because the interest rate on a variable universal life insurance policy changes, many people become confused and think the policy itself is variable. The fact is, a life insurance policy, even though it has similar features, is not a savings account. You can convert a variable universal life insurance policy to another type of policy, or close it out and invest in a savings account, but there is no fixed alternative to the policy.
Choosing the investments used in the policy could result in a faster accumulation of cash value, or it could retard growth. You cannot lose more than the accumulate value of the policy, even if the policy goes badly south. The wording of the policy will state that the face value of the policy is secure regardless of the potential losses your choices could suffer. In that light, there is no reason to convert to a fixed policy, because the only thing you would accomplish is to reduce the cash value of the policy by the amount of the fees necessary for the conversion.
You do not have to be concerned about the value of your policy dropping below a certain amount, which means that converting your policy to another type of insurance product is probably unnecessary. You can stop investing additional money into the policy, if you were doing so, until the rates go up again, but otherwise all you have to do is wait out the dip in rates. Keep in mind that there is guarantee you will profit from the investments on a life insurance policy. If you are fortunate enough to make a gain, congratulate yourself, but there is no need to panic at the first indication of a drop in the stock markets.
Answered July 3, 2012 by Anonymous