VARIABLE LIFE INSURANCE

 NON TRADITIONAL LIFE INSURANCE PRODUCTS 

VARIABLE LIFE INSURANCE PLANS

A permanent life insurance policy that offers coverage as long as the premiums are paid is known as variable life insurance. All types of variable life insurance have three components:

• Death benefit
• Cash value
• Premium

Under this type of insurance policy, every premium payment that you make, a portion of the same goes to the cost of insurance and insurer’s fee. This amount, later, pays to keep the death benefit in place.
The remaining premium is then invested in a number of sub-accounts (similar to mutual funds) available under the policy.

A typical variable life insurance policy has several sub-accounts with offerings of at least 50 options. If the cash value performs well, the death benefit is increased and can be withdrawn as cash or used as collateral. This amount will be given to the insurer in return for giving up the coverage.

PROS AND CONS OF A VARIABLE LIFE INSURANCE POLICY

Variable universal life policy has its own set of pros and cons. Here are a few of them:

Advantages

1.   Helps you pay a premium: The cash value can be used to pay premiums and pay more than the decided premium payments.

2.   Better benefits: Since the remaining amount apart from the death benefit and the insurer’s fee is invested in sub-accounts, the cash value can grow quickly.

Disadvantages

1.   Expensive: Purchasing life insurance is comparatively less expensive in comparison to variable life insurance.

2.   Risky: The risk associated with variable insurance is high as any investment. If it performs poorly, it can decrease the value of the investment.

Variable life insurance is a permanent life insurance product with separate accounts comprised of various instruments and investment funds, such as stocks, bonds, equity funds, money market funds, and bond funds.

 How Variable Life Insurance Works

In some ways, variable life insurance can be described as a form of securities. Why? Because of investment risks, variable policies are considered securities contracts.  

• Variable life insurance is a permanent life insurance product.
• This product contains separate accounts comprised of various instruments and investment funds.
• Variable policies are considered securities contracts because of investment risks.
• Variable life insurance is often more expensive than other life insurance products, like term life.  

Variable life insurance policies have specific tax benefits, such as the tax-deferred accumulation of earnings. Provided the policy remains in force, policyholders may access the cash value via a tax-free loan. However, unpaid loans, including principal and interest, reduce the death benefit.

Additionally, interest or earnings included in partial and full surrenders of the policy are taxable at the time of distribution.

Like most life insurance policies, individuals are required to undergo full medical underwriting to obtain a variable life insurance policy. Those people with compromised health or those who have other unfavorable underwriting factors may not qualify for coverage or may realize higher premiums.