Variable Life Insurance
Variable life insurance, or variable universal life insurance, is a life insurance plan that builds cash value over time. Variable life insurance is a type of permanent life insurance. Once the initial investment is made, there will be a death benefit available for pay out anytime during the life of the insurance policy. There is also no endowment age, the age at which the insurance policy can be paid out even though the insured is still alive. Variable life is more of an investment policy and will grow over time.
How It Works
When you purchase any insurance policy from an insurance company, the money that you pay, either up front or in monthly premiums is invested by the insurance company into mutual funds and other stocks. The total amount the policy makes in investments, including the original face value of the policy, is called the cash value. In a whole life policy the face amount of the policy is paid out in the event of death or once the policy holder reaches endowment age and the insurance company keeps any remaining cash value of the policy.
In a variable life policy, the policy holder gets the entire cash value of the policy and they have the autonomy to move the money around in various investment opportunities. For example, if you purchase a $200,000 whole life policy, the insurance company will take your monthly premium and invest it. Once the policy holder passes away or reaches endowment age, usually 95+, then they will receive the $200,000 face value of the policy. Any profit made from the investments belongs to the insurance company. In a variable life policy the policy holder has control over the investment, so a $200,000 face value could grow to $350,000 by the time a death benefit is paid or the holder reaches endowment age. The policy holder would receives the cash value of the policy, the entire $350,000.
Who Would Benefit From A Variable Life Policy
Since it really serves as an investment opportunity, it helps to have some disposable income. If your are looking for a solid life insurance policy with guarantees, this is probably not the policy for you. The funds invested into the variable life policy can then be invested into mutual funds and other investments and is completely under the ownership of the contractor. If you purchase a variable life policy then you have complete control of the cash value funds of the policy.