Variable Life Insurance
Variable life insurance is a form of permanent life insurance that combines lifelong protection with a built-in investment component. Unlike whole life or universal life, the cash value and death benefit in a variable policy can fluctuate, depending on the performance of selected investment subaccounts. This type of policy is generally designed for individuals who are comfortable managing investments and accepting a greater degree of risk.
How Variable Life Insurance Works
- Permanent Coverage: As long as you pay the required premiums, the policy remains in force for life.
- Investment Subaccounts: Cash value is allocated among professionally managed investment subaccounts, similar to mutual funds, offering growth potential and market exposure.
- Flexible Cash Value and Death Benefit: Both can increase or decrease based on the performance of the underlying investments. Poor investment results can reduce both cash value and, in some cases, the death benefit.
Pros and Cons of Variable Life Insurance
| Advantages | Considerations |
|---|---|
| Potential for higher cash value growth through market-based investments | Investment losses can decrease both cash value and death benefit |
| Ability to choose and diversify subaccounts according to your strategy | Requires ongoing investment management and comfort with risk |
| Tax-deferred growth on cash value | Typically higher fees than other life insurance types (administrative, management, and insurance costs) |
| Permanent protection for beneficiaries | Complex policy structure and the possibility of policy lapses if cash value declines |
How Does Variable Life Compare to Other Policies?
- Whole Life: Offers guaranteed cash value growth and fixed premiums; does not involve investment choices or market risk.
- Universal Life: Provides flexible premiums and adjustable death benefit, with interest credited at declared or index-based rates (see Universal Life Insurance for more).
- Indexed Universal Life: Links cash value growth to market indices (such as the S&P 500) but with downside protection; no direct investment in equities.
- Term Life: Simple, lower-cost coverage for a fixed period—no investment or cash value component. See Term Life Insurance for details.
Who Might Consider Variable Life Insurance?
- Those with advanced knowledge of investment principles and a willingness to actively manage their policy’s subaccounts
- Individuals comfortable with market risk who want permanent coverage with higher growth potential
- People seeking additional tax-deferred investment vehicles beyond retirement accounts
Key Questions to Ask
- What fees, charges, and expenses are associated with the policy and investments?
- How much time and attention will you need to devote to managing the policy’s subaccounts?
- What are the minimum guaranteed death benefits and cash value features, if any?
- How does the policy handle downturns in market performance?
Variable life insurance is one of the most complex life insurance options and is not for everyone. For many, the simplicity and predictability of whole life, universal life, or indexed universal life insurance may be a more appropriate fit for long-term protection and wealth transfer.
Looking for Guidance?
If you’re ready to take the next step in planning your retirement with confidence, Foxcove Financial is here to help. We’ll walk you through your options, answer your questions, and help you evaluate solutions that align with your long-term goals. We specialize in insured strategies designed to protect and grow your retirement income. Call us at 609.807.8502 or schedule an appointment.