What is Variable Life Insurance
What is Variable Life Insurance. Definitions and important Variable Life Insurance strategies.
Define Variable Life Insurance
Variable Life Insurance is yet another type of life insurance policy. As with the term life insurance, whole life insurance and universal life insurance policies, variable life insurance offers a lump sum death benefit available for your dependents should you pass away.
The main difference and advantage variable life insurance policies offer is that you have the freedom to allocate your money among different types of investments, be it the equities, bonds, money markets, or a hybrid of all. Variable life insurance strategies thus come into play. However, all these remain investments in your insurance company’s portfolio.
The value of the death benefit is thus variable and may fluctuate depending on the performance of the investment portion of the policy. Variable life insurance policies usually do not actually have a minimum cash value, and thus carry a certain degree of investment risk.
Furthermore, the cash value cannot be withdrawn during your lifetime.
Benefits of Variable Life Insurance
Tax Deferred Investment Earnings
One benefit of variable life insurance policies is that even as you allocate your funds among different types of investments, earnings are tax-deferred. Interest earned on the investments can be applied toward the premiums, thereby allowing you to lower premium payments.
Unlike whole life insurance policies, variable life insurance policies offer you greater freedom to choose among different investment options. You also have the freedom to invest more aggressively in high risk/high return investments. With well executed variable life insurance strategies, you would be able to grow your account quickly.
Variable Life Insurance Disadvantages
Nonetheless, this greater control comes at a price: you would in turn assume the risks of investment. Losses on your investment account would mean lower death benefits or even higher monthly premiums.