Variable Life Insurance
What Is Variable Life Insurance?
Variable life insurance is a type of permanent life insurance that allows the policyholder to invest the policy’s cash value in various investment options such as stocks, bonds, or mutual funds.
Because the cash value is invested in financial markets, the policy’s value can rise or fall depending on investment performance.
Why It Matters
Variable life insurance provides both life insurance protection and potential investment growth. However, it also carries investment risk because the value of the policy depends on market performance.
Policyholders must understand the investment component before purchasing variable life insurance.
How Variable Life Insurance Works
Premium payments fund the policy and are allocated between insurance costs and investment accounts.
Key features include:
- investment options within the policy
- fluctuating cash value based on market performance
- a death benefit that may vary depending on investment results
Policyholders typically choose how to allocate investments among available funds.
Example
A policyholder may invest the policy’s cash value in stock-based funds, potentially increasing the policy’s value if the market performs well.
Variable Life Insurance vs Whole Life Insurance
- Variable life insurance allows investment in market-based accounts.
- Whole life insurance typically provides guaranteed cash value growth.
FAQs About Variable Life Insurance
Is variable life insurance risky?
Yes. Cash value may fluctuate based on investment performance.
Can policyholders choose investments?
Yes. They often select among available investment options.
Does the death benefit change?
It may vary depending on policy structure and investment results.
Related Terms
