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Variable Life Insurance

Variable life insurance is a form of permanent life insurance that can offer you coverage for the rest of your life while also offering several opportunities for financial investments, such as stocks and bonds.

Like other forms of life insurance, variable life policies are designed to provide your beneficiaries (family, friends or even an organization) with a death benefit if you die while your policy is still in effect.

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How Does a Variable Life Insurance Policy Work?

Every time you pay a premium on a variable life insurance policy, a portion of the premium is diverted into the “cash value” of the policy. This cash value, in turn, is invested into sub-accounts similar to mutual funds. These accounts serve as a way to invest your money in stocks, bonds and other financial investments.

You get to choose which kinds of investments your cash value will link to. Most variable life insurance policies offer upward of 50 different kinds of sub-accounts.

Potential Growth and Risk With Cash Value Investment

The stock market has the potential to significantly build your investments. Your investments through a variable life insurance policy's sub-accounts are also tax deferred, which can be a value.

However, there are potential risks to investing through this type of life insurance policy. Any investment in stocks or bonds could drop in value during a bad economic cycle. Some people may find that buying a term life insurance policy and investing separately in other channels is a better option for their financial needs.

What Are the Costs of Variable Life Insurance?

When you purchase a variable life insurance policy, there may be some additional costs and restrictions:

  • Your premiums can rise if your investment sub-accounts perform poorly
  • Your sub-accounts will likely face management fees, much like a mutual fund typically does
  • Variable life insurance policies may have growth caps imposed by your life insurance company

Your unique circumstances should dictate whether or not to invest in a variable life insurance policy. For some, there is a major draw to be found in the tax benefits, as well as they ability to secure a loan by using the policy’s cash value as collateral. For other people, the costs and risks may be too great.

*Applications for insurance may be subject to acceptance by insurer. Rates and coverage amounts will depend upon the carrier selected.


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