At this point, we already know everything we need to know about mutual funds – what it is, the types of mutual funds, how to start investing, and the strategies we can implement to make it work in our favour.
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Now, let us discuss another instrument that is very similar to Mutual Funds, but is coupled with protection to ensure that whatever happens, your financial goals will be reached.
As defined by investopedia, a Variable Universal Life Insurance, popularly known as VUL is
“A form of cash-value life insurance that offers both a death benefit and an investment feature. The premium amount for variable universal life insurance (VUL) is flexible and may be changed by the consumer as needed, though these changes can result in a change in the coverage amount. The investment feature usually includes “sub-accounts,” which function very similar to mutual funds and can provide exposure to stocks and bonds. This exposure offers the possibility of an increased rate of return over a normal universal life or permanent insurance policy.”
Alright! Now, let’s discuss it on a very very simple way.
On the simplest sense, a VUL is one part insurance, and one part investment. While most investors would shy away when insurance is raised in the discussion, others find this option a great way to secure a financial goal, like ensuring that their children have enough funds even when the unfortunate happens.
Similarities of Mutual Funds and VULs
The investment portion of a VUL is technically a mutual fund. Thus, when investing in VULs, you’ll be given the opportunity to choose whether what type of funds (equity, bond, and balanced) the investment portion of your premium will be invested in.
In most VUL products, you can add as much additional investments that you can to increase your funds’ portfolio, subject to minimum amounts employed by the respective VUL providers.
Just like mutual funds wherein anytime that an investor may be needing the funds, these are available for withdrawal (or redemption).
Differences of Mutual Funds and VULs
Well, the only difference of mutual funds and the investment portion of VULs is what you are purchasing when you are investing in it. In mutual funds, when you make an investment, you purchase shares of stocks. In VULs, when you make an investment, you purchase “units” of a trust fund. Yes, the investment portion of VULs are basically UITFs (Unit Investment Trust Fund).
Basically, this shows the structural differences of these two types of investment.
On the obvious note, the major difference of the two is the insurance part of the VUL. A mutual fund has none.
Now, the question will always be, what is the best investment to put your money in?
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