When deciding which life insurance option is best for your family, remember to consider variable life insurance. A variable life insurance policy can benefit you most when you want to maintain versatility in your portfolio while retaining access to cash value.
Variable life insurance is permanent life insurance that provides protection for life, while allowing the freedom to control your own investments. The death benefit is determined based on the amount of premiums paid into the policy. These premiums are specifically tailored to remain constant and level over long periods of time. Because variable policies accumulate cash values on a tax-deferred basis, they can offer higher rates of return compared to traditional, whole-life policies.
The cash value of each individual variable life insurance policy depends on the results of the policy’s designated investment fund. Policyholders can choose from a selection of includes stock, bond, or money market funds. While whole life insurance policies offer guaranteed cash values, variable policies can increase or decrease in value in relation to their investments.
Variable life insurance policies allow investors to devote their funds from excess premiums into mutual funds. This allows the account to accumulate interest far more quickly, compared to rival policies such as whole life or universal life. In fact, gains made on investments are not taxed until the benefits are paid upon the policyholder’s death.
However, this control over your investments requires a trade off. Variable life insurance is also generally the most expensive type of cash value insurance. In addition, the premiums that insurance companies charge can vary based on each company’s performance and the accuracy of their actuarial tables.
Though policies vary between companies, most insurance companies allow policyholders to update their investment selections as often as they wish. The flexibility of the account stems from its cash value and from the wealth of options available for accessibility.
- Providing permanent protection while accumulating in cash value.
- Using the cash value to pay premiums after a certain time period.
- Supplementing retirement income with the cash surrender value.
- Surrendering the policy at any point in its lifetime for direct cash surrender value.
- Taking out a loan, using the policy’s cash value as collateral (policy owner only).
Unlike universal or term life insurance, a variable life insurance policy offers no specific guarantees. If the policy’s mutual fund dips in value, so too will the accumulation account. It is even possible for the policy to close due to lack of funds, in such rare cases as a market crash.
Despite the potential upside for policyholders, many life insurance customers prefer to use more traditional products to meet their needs for guaranteed funds upon their death. Variable life insurance accounts offer compelling alternatives to experience investors that can tolerate a significant level of risk