Variable Life Insurance
Variable Life Insurance policies are a type of Permanent Life Insurance that offers fixed premiums and a minimum death benefit. It's also a type of security. Unlike Whole Life Insurance, its cash value is invested in a portfolio of securities.
As the policyholder, you can choose the mix of investments from those the policy offers. However, the policy's investment return is not guaranteed and the cash value will fluctuate.
What is Variable Life Insurance?
As explained above, Variable Life Insurance is a type of Permanent Life Insurance that allows you, the policyholder, to invest the cash value in a portfolio of securities. This means the policy has the potential to earn more interest, but also has exposure to market risk.
You may sometimes see Variable Life Insurance referred to as Variable Appreciable Life Insurance.
As in all Permanent Life Insurance policies with a cash value, Variable Life Insurance (VL) accrues tax-deferred interest. However, Variable Life Insurance lets you choose the mix of where the money is invested such as into equity funds, a money market fund, bonds, stocks, or some combination of accounts. In Whole Life Insurance and Universal Life Insurance policies, the insurance company determines the interest rates.
The ability to decide on your investment products makes the potential rate of return in Variable Life Insurance the highest, but it is also the riskiest, as the death benefit amount and the cash value will rise and fall depending on the performance of your chosen investments. To help mitigate this risk, many Variable Life Insurance policies will guarantee that the benefit amount will not drop below a pre-determined minimum. Sometimes this is done with the purchase of an add-on rider, which would be at an additional fee.
Variable Life Insurance is considered an investment product purchased by the consumer, and therefore, represents a securities contract regulated by the Federal Government and must be sold with a prospectus.