What is Variable Life Insurance?
Most people purchase life insurances for their family’s future financial security. It protects the family or the beneficiaries in the event of the death of the insured person. Variable life insurance is different from other life insurance packages because it does not simply offer protection. Apart from being a kind of whole life insurance that has a death benefit, variable life is also an investment that can potentially grow as a mutual fund or savings. It is considered to be risky to policy owners and one of the most expensive types of cash-value insurance.
How it works
Variable life is a permanent life insurance policy where the premium that the clients pay is considered as a cash value that can be distributed into several sub-accounts. Policy owners are the ones who direct the distribution of funds according to their own choosing rather than that of the company who insures them. Some typical account choices include common stock, bond, mortgage, and money-market accounts.
The death benefit and cash value benefits in a variable policy are different in relation to the value invested in the underlying policy. They depend on how well the client’s chosen type of investment is doing. This is why variable life is considered risky. If the investment type chosen is lucrative then an increase in the value of the account increases the benefits as well. This kind of investment promises a possibility of greater returns. If the investment does not do well then there will be a decrease in the account’s value as well as the benefits. The decrease of the value is, however, subject to a minimum guarantee. This is the general structure of a variable life insurance policy but it varies for different insurance companies.
The Variable Life Insurance Advantage
A major advantage of variable life insurance policies is that the increase in the account’s value is not taxable until the policy is surrendered. The value of the account in later years can also be accessed free of any income taxation if accessed properly through loans using the account as collateral. The cash value is not redeemable throughout the insured person’s lifetime but there are schemes that some companies provide for the money to be claimed without the event of death. An example of an insurance product being sold by some company is a type of variable life insurance policy that allows the insured person to claim the insurance amount coverage at a fixed time in the future in the event that the person does not die in the stipulated time. Agents and brokers of insurance companies who offer this kind of policy should be consulted if you are interested in availing this kind of insurance product.
Since variable life is an investment, agents that offer this kind of insurance must be licensed security dealers and registered with the United States Securities and Exchange Commission. The variable life insurance policy must also be presented with a prospectus that details all policy charges, fees, and sub-account expenses. The federal law regulates this type of insurance policy because it is considered as a security contract.