Variable Life Insurance
Variable life is a type of fixed-premium whole life insurance policy . Variable Life insurance for which the amount of the payments is determined by the performance of the underlying investments chosen by the policyholder, not the insurance company . Agents selling such policies must be Registered Representatives of a broker/dealer licensed by the NASD and registered with the SEC. Choices range from low-risk fixed income funds to high-yield stock and bond funds. These accounts are typically accompanied by higher fees. Returns are generally not guaranteed and investment risk is assumed by the policy holder instead of the insurance company. Premiums remain fixed under this arrangement. As would be expected, the better the investments perform, the larger the death benefit will be. However, the death benefit will not drop below a certain minimum, regardless of investment performance.
If your investments do well, your potential gain with variable life can be great. Cash value of the policy can be divided if you choose to spread the risk among several types of investment vehicles. Your contract is effectively rewritten if you make partial withdrawals. You receive investment performance reports but no reporting of how your total life insurance premium is spent. In the early years of the policy, the cash surrender value is small because much of the premium you pay goes to cover company expenses and fees. Variable life is best considered a long-term, big-ticket financial commitment.
- Builds cash value.
- You can change the "mix" of your investments a stated number of times per year with no charge.
- No capital gains are due when you switch funds and any gains are tax-deferred.
- You can borrow the cash value of the policy at competitive or lower than market rates.
- Policyholder has decision making choice for underlying investments.
- Fixed Premiums.
- Death Benefit can increase, for well performing investments.
- You may forfeit the entire cash value of the policy if your chosen investment "mix" performs poorly.
- Increased risk when choosing stocks as investments.
- Generally the premium cost is greater than Term Life Insurance .
- Death benefits can decrease for ill performing investments, but will not drop below a certain level.
If you need a tax shelter and are an experienced, risk- tolerant investor, variable life insurance may be the life insurance option for you.