If you are young and feel like taking the world on, then variable life insurance is tailor made for you. It is both an investment and provides security. It is a lot like whole life insurance, but differs in the sense that variable life insurance provides you with much more control over the death benefits and cash value amounts.
The premiums on variable life insurance can go up as well as down, depending on what the market’s status is. Part of the pay will go towards paying for the life insurance and another part, which is usually about 4%, goes toward building cash value as part of your investment portfolio.
With variable life insurance, you as the policy owner get to decide how this money will be invested. You can invest in stocks or bonds or other types of investments. Your death benefits and cash value will change as the market changes. You get to make the decision about how much of the investment will be reinvested and how much is applied to the insurance policy. You have more control, which also means you have more risk with this type of policy. At the same time, you have more of an opportunity to receive higher benefits if the market is doing well.
Insurance companies that offer variable life policies will have a prospectus available which defines the policy. Before signing up for a policy, you should read it very carefully. The Commissioner of Insurance and Securities and Exchange Commission regulates this type of insurance policy. Each insurance agent who sells variable life insurance is required to have a NASD.
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In worst case scenarios. a variable life insurance policy could lose all of its value and not be considered to be a valid policy. Most insurance companies offer a minimum death benefit that is guaranteed to prevent this from happening. With these types of policies, the insured is required to pay a monthly minimum premium.
Because of the fact that variable life insurance is not an investment in the strict sense, the capital appreciation within the insurance policy is tax deferred. This is another way to help to avoid paying estate taxes. People will commonly buy variable life insurance for their heirs to use. They can either borrow against it or withdraw against the cash value. As the cash value is withdrawn, the death benefits decrease.
Another opportunity that variable life insurance provides is that you are able to change your investment selections without having to pay transaction fees or incur taxes. Most insurance companies do limit how many transactions you can make per year to about 12 transactions.
Most insurance companies also offer survivorship policies. A survivorship policy covers two people under one variable life policy and benefits are not paid out until both of them have died. This type of policy can be helpful for people who are unable to obtain life insurance on their own because of health problems.
Variable life insurance may or may not be right for you. You should take to your insurance agent to discuss this. It can be a big opportunity but the risk is also high, so you need to review all of your options before you make a final decision.
