Variable life insurance provides financial security to your loved ones in the event of your untimely death. Unlike other forms of life insurance, variable life insurance includes an investment option. Variable life insurance falls under the category of whole life insurance as it will allow you to have life insurance coverage until the time of your death.
How does variable life insurance differ?
When you invest money into this type of insurance policy you will also be given a cash value account. When you pay your monthly premium, part of the money will end up going into this account. The premium will then start to collect interest money. The policy holder can take the interest money and invest it into other things like CDs, money market accounts, bonds, equities, stocks, etc. The investments you have to choose from are determined by the insurance company so you may not be able to put it into CDs. Since you are able to invest money into several different accounts, variable life insurance is one of the few investment policies that allows you to actually make money.
Pros of variable life insurance
The cash value account of the insurance policy is the biggest advantage that you have. Unlike other accounts, you will have access to the cash value account any time you need it. This helps you to pay the premiums on the insurance policy, which tend to be higher from other life insurance policies. One other benefit you have is you are not liable for any taxes on the cash value account. This allows you to grow your investments faster. When you terminate the policy or it is surrendered the taxes on the cash value account will then be determined and must be paid.
Cons of variable life insurance
While the cash value account is nice, it does come with some risk just like any other investment that you have. If you invest poorly, you will lose money on the insurance policy. What this means is that your death benefit will be reduced and your loved ones will not have as much money to cash in if you do pass away. Since the amount your loved ones could end up with is based on your investment decisions, it is a considered a high-risk investment option. A poor performing cash value account will mean that you need to pay more in premiums, which can sometimes end up becoming incredibly costly. The policy holder is not allowed to withdrawal money from the cash value account for personal use. It can only be used to pay the premiums or to invest into other things.
Income status and flexibility will play a role in choosing which type of life insurance policy best suits your needs. Some people are able to manage their investments well and find that the cash value account with variable life insurance does provide them with more flexibility and options. Others consider the risk of the account and their future income when determining if this is the type of policy to choose.
