Variable Life Insurance Definition: Everything You Need to Know

Variable life insurance is a type of life insurance policy that allows you to invest the premiums you pay into various investment options, like stocks, bonds or mutual funds. The value of your policy’s investments will fluctuate based on market conditions, and you may be able to adjust your investment portfolio over time to better meet your goals.

How Variable Life Insurance Works

When you purchase a variable life insurance policy, you typically pay a set premium each month or year. A portion of that premium goes toward the cost of the insurance, while the rest is invested in a selection of investment options you choose from. These investments are held in a separate account within the policy.

The value of your policy’s investment account will rise or fall, depending on market conditions and the performance of the investments you’ve chosen. If the investments do well, the value of your policy will increase. If they perform poorly, your policy’s value will decrease.

Many variable life insurance policies offer flexibility when it comes to choosing investments. You can often choose from a range of investment options, including stocks, bonds and mutual funds. Some policies may also offer guaranteed minimum death benefits, which can provide additional protection if your investments perform poorly.

It’s important to note that variable life insurance policies may come with fees and charges that can impact your returns over time. These can include administrative fees, investment management fees and mortality and expense charges.

Benefits of Variable Life Insurance

Variable life insurance can offer a range of benefits, including:

• The ability to invest in a range of different types of investments
• The potential for higher returns than other types of life insurance policies
• The ability to change your investment mix over time to better meet your needs and goals
• The ability to choose from different benefit options, such as level or increasing death benefits
• Some policies offer potential tax benefits, such as tax-free withdrawals or a tax-free death benefit

Drawbacks of Variable Life Insurance

While variable life insurance can offer many benefits, there are also some potential drawbacks. These can include:

• The risk that your investments may perform poorly and the value of your policy could decrease
• The fees associated with variable life insurance policies can be higher than other types of policies
• Variable life insurance can be complex and may require a more in-depth understanding of investing and financial planning
• The potential for high surrender charges if you decide to cancel your policy early

FAQ: Questions and Answers about Variable Life Insurance

Q: What are the benefits of variable life insurance?

A: Variable life insurance offers the potential for higher returns than other types of life insurance policies, the ability to invest in a range of different investments, and the flexibility to change your investment mix to meet your changing needs and goals.

Q: What are the drawbacks of variable life insurance?

A: Potential drawbacks of variable life insurance can include the risk of poor investment performance, higher fees than other types of policies, complexity, and the potential for high surrender charges if you cancel the policy early.

Q: What types of investment options are available with variable life insurance?

A: Variable life insurance policies may offer a range of investment options, including stocks, bonds, mutual funds and other types of investments.

Q: What happens if the investments within my variable life insurance policy perform poorly?

A: If your policy’s investments perform poorly, the value of your policy could decrease. However, some policies may offer guaranteed minimum death benefits to help protect against this risk.

Q: Can I change my investment portfolio within my variable life insurance policy?

A: Yes, many variable life insurance policies allow you to adjust your investment mix over time to better meet your needs and goals.

Conclusion

Variable life insurance can be a good option for those looking for a life insurance policy that also allows them to invest in a range of different investments. However, it’s important to carefully consider the potential risks and fees associated with these policies before making a decision. By understanding the benefits and drawbacks of variable life insurance, you can make an informed choice about whether this type of policy is right for you.