What is Variable Life Insurance?
Variable Life Insurance is a type of permanent life insurance that combines a death benefit with a cash value component, which can be invested in a variety of accounts, similar to mutual funds. This unique feature offers policyholders the potential for greater returns based on the performance of the underlying investment options. However, it also carries more risk since the cash value can fluctuate based on market conditions.
With Variable Life Insurance, premiums are typically fixed, but the cash value and death benefit may vary depending on the performance of the chosen investments. For example, if the investments perform well, the policy’s cash value can grow, potentially increasing the death benefit. On the other hand, poor investment performance can lead to a reduction in the policy’s cash value, which could also affect the death benefit amount.
This insurance type is particularly appealing to individuals comfortable with risk and who seek the potential for higher returns than those typically associated with Whole Life Insurance. It’s also useful for policyholders interested in having a more active role in the management of their policy’s cash value.
Like other forms of permanent life insurance, Variable Life Insurance offers the advantage of tax-deferred growth on the cash value component. However, it’s important to note that because of the investment component, these policies may have higher fees and expenses, and the policyholder bears the risk of loss if the investments perform poorly.