A variable life insurance policy is a type of permanent life insurance that enables you to be more proactive in using the underlying cash value of the policy. With variable life insurance you can invest money in separate accounts holding stocks or bonds whose value would naturally be variable over time, hence ‘variable’ part of the name. So what is a variable life insurance policy? Variable life is similar to a whole life insurance policy in that the policy holder buys financial protection for his/her benefactors in the event that he/she dies prematurely, as long as the cash value of the policy is being maintained. The cash value in this case is determined by the performance of the aforementioned investments contained in it, without a time commitment from the insured person.
Unlike term life or standard most whole life insurance policies, variable life has inherent risks due to the fact that a portion of the premiums are being allocated for higher risk investments. While there are many who like the flexibility of the variable life insurance policies, because of the possibility of appreciation of the value of securities associated with the policy, it is important to remember that you may have problems if the cash value of the policy falls. When this happens you will have to pay more out of pocket costs to maintain the policy’s cash value. The death benefit is tied to the cash value of the policy, not surprisingly, and that is the entire reason for paying for life insurance in the first place!
Another benefit though, is that until the policy is surrendered there is usually no taxation of the profits made from the portfolio associated with a variable policy. The paper profits, ie the increased cash value, may also be applied to future premiums of the variable life insurance policy, which is a huge advantage, assuming the investments are performing favorably for you. There is the possibility that the profits gained can not only cover the premiums, but the key thing to remember here is that there is far more risk associated with this policy as well as the possibility of it being a very effective way to enhance your finances.
You may have arrived at this article wondering: what is variable universal life insurance? It is similar to variable life insurance, but there are subtle differences. Hit the last link to find out more.