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Also,
see our Variable
Universal page.
Variable Life Insurance: Is it right for you?
If you are interested in variable life, you'll have to search for a company that has agents who are licensed to sell variable products—such as stocks and other securities. That's because with variable life, a portion of your premium pays your cost of insurance and fees while the remainder is invested in stocks, bonds, mutual funds, or whatever instrument the company has available. If your investments perform well, you could easily make enough money—after a few years—to pay your premium if you wish. The downside is, if the investment does poorly, you can lose the entire cash accumulation and be forced to increase your premium as well in order to keep the life insurance in force. Most variable policies have a guaranteed minimum death benefit, so even if you lose your investment, the policy will still pay something in the event of your death as long as you keep paying a premium. Another downside, however, is that you cannot take money out of a variable life like you can a universal policy. Thus, your investment is entirely for the benefit of your heirs. Furthermore, if your investment does so well that your cash accumulation portion is far in excess of the death benefit of the life insurance, your heirs could be liable for tax on the investment proceeds. One way to prevent that is to choose an option that increases the death benefit as the investment grows. Variable life policies, like most other types of life coverage, can be purchased with a variety of riders, including spouse and child riders, disability waivers, cost of insurance waivers and others. This type of insurance is definitely not for everyone. If you want a policy with a premium and death benefit that are guaranteed not to change, you don't want variable life. Also, if you do not understand securities, or if you are the type of person who nearly has a nervous collapse every time the stock market takes a dip, you should probably avoid these products. If you choose to explore variable life, you should either have a good understanding of securities and of how to invest in them yourself, or you should look for a company that will provide you with an agent who has a track record of successful investing. In general, this product is more suited for younger individuals who have time for the ups and downs of the economy. Over time, the market generally goes up, but it can have some severe dips along the way. Unlike fixed products, in which you can never lose what you have already accumulated, the values in variable life can go both ways. The gains however, when they come, are usually much more dramatic than in a standard life insurance that pays a fixed percentage for the life of the policy.
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"I
wish they had a life insurance policy that was included as a rider
on your mutual funds," an agent friend's client complained recently.
"Well, my company has no such creature," the agent replied.
But what he was talking about was a variable policy, and, although
not common, they are still available.
