Variable insurance products gaining in popularity

In today's sometimes shaky economic environment, more and more people are looking toward alternate means of investing their hard-earned money. For this reason, variable insurance products such as variable annuities and variable universal life insurance have recently gained enormous popularity.

Built-in features combining the potential accumulation of assets with a measure of security to protect those assets make both of these products worth exploring. They also offer the opportunity to control the investment risk assumed and the flexibility to change investment choices. Since the investment performance of any variable account cannot be guaranteed and will fluctuate with market conditions, this kind of flexibility is important.

It's almost impossible to pick up a newspaper or magazine today without seeing a mention of variable annuities and variable universal life. A registered insurance representative can explain these products in detail and make clear the investment risks, the impact of inflation, and how these products are generally taxed.

Of course, any interested party should also consult a tax advisor or attorney before making any decisions with tax implications.

Variable annuities offer the advantages of an annuity combined with investment opportunities. In general, an annuity is a contract a person can purchase that (after a given period of time) guarantees payments at regular intervals, for a given period of time. Since the purchaser only pays taxes on the gain as it is received, the funds in the annuity accumulate on a tax-deferred basis. (However, withdrawals prior to age 59 1/2 may be subject to an additional 10 percent IRS penalty.)

Variable annuities provide the added advantage of a choice of investment divisions.

They permit allocating the money paid into the annuity among several different investment divisions, each of which is managed by professional money managers. There's usually a fixed account, as well that offers a guaranteed rate of return. This combination offers a level of security combined with flexibility, plus the ability to control the potential growth of the money invested.

Variable universal life (VUL) is a universal life insurance policy that offers the opportunity to allocate the cash value of the policy to the buyer's choice of investment accounts.

Unlike traditional life insurance, which ties policy performance directly to insurance company performance, VUL cash value is tied directly to the investment divisions the buyer selects. This means that the amount of death benefit in a VUL policy will be determined by the performance of the interest divisions. As with variable annuities, VUL offers the possibility of controlling the amount of risk assumed, the flexibility to change investment choices, and the potential for growth. VUL also provides premium flexibility, which means the buyer can make periodic premium payments, or possibly even skip premium payments if the accumulated cash value of the policy is sufficient to pay the costs of insurance.

For the individual considering a variable insurance product, it's not only important to understand the products, but to have a clear sense of his or her overall financial picture and goals.

What is the period of time the individual wants to keep the money invested? What are the tax implications of any choices made? How does the status of the buyer's current debts weigh against assets? Does the buyer have any retirement funds other than Social Security and a pension plan at work? What exactly is the level of risk tolerance that most comfortable for the investor? How does the buyer's immediate need for money compare to the long-term need for money?

All of these considerations play a crucial part in determining whether variable products are best.

A registered representative can help answer any questions.

(Buckley Van Hooser is an agent for New York Life Insurance Company and a registered representative for NYLIFE Securities Inc.)