As we mentioned earlier, depending on the type of life
insurance policy you buy, the money in the separate account can grow in
different ways. The reason for this is
that you have two major types of policies: universal life insurance and
variable universal life insurance.
Straight universal life insurance provides a fixed rate of
return on the money that goes in the separate account. Currently, most companies that issue
universal life insurance policies are guaranteeing about a 4% rate of growth on
the funds in the separate account. Now,
during times of high inflation, policy owners can make more money than the
guaranteed minimum. In many ways, the
money in these types of polices is almost life having a money market account.
In a variable universal life insurance policy, the funds in
the separate account are tied to various investment funds. The buyers of the policy can choose how to have
these funds invested. With this type of
policy, the buyer can decide if they want to take safer investments to grow the
separate account over time, or if they would like to take riskier investments
to make more money.
Most variable universal life polices have 15 to 20 different
investment options, such as stock funds, bond funds, high risk funds, and
others where the money in the separate account can be invested. In addition, policy owners can actually
choose which percentage of the money in the separate account goes toward their
investment choices. It does not have to
be an all or nothing choice.
The problem, of course, is the same as with any variable
investment: you can lose money. It is up
to the buyer of the policy to do their homework and ask appropriate questions
to determine which investments are right for their particular circumstance.