Variable Life Insurance
What is Variable Life Insurance?
Variable Life Insurance is a type of Whole Life Insurance that gives permanent protection to the beneficiary upon the death of the policy holder. It is a type of insurance that builds cash value. It allows you to allocate a portion of your premium dollars to a separate account that can be invested various stock and/or bond markets within the insurance company’s portfolio. This would include equity fund, bond fund, money market fund, or a combination of any. Although there is a specified minimum death benefit, cash value may fluctuate up or down. Since this type of insurance has investment risks, they are considered as securities contracts and are regulated under the Federal Securities Laws therefore must be sold with a prospectus.
Pros
- Allows you to participate in different types of investment options without being taxed on your earnings (until you surrender your policy)
- You can apply the interest earned on your investments to your premium payments, thus lowering the amount you need to pay.
- Fixed premiums allow you to plan your cash outlays
- Can be used for education planning, retirement planning and estate planning because of its tax free policy.
Cons
- Variable Life Insurance is more expensive than other types of Whole Life Insurance
- The risk of your investment funds performing poorly. If you depend on it to pay for your premiums, you may need to pay more than you can.
- Poor fund performance also means that death and cash benefits may go down although it will never be below the specified minimum.
- You cannot increase or decrease the face amount of your policy. If you want more coverage, you need to purchase another policy which means additional cost.
- You cannot withdraw from the cash value during your lifetime.
- Poor investment performance can also lead to a possible lapse of policy without value.
