Variable Life Insurance

Variable life insurance is a type of permanent life insurance which provides a monetary benefit to your beneficiary after you die. This life insurance is called "variable" because you can allocate a portion of the premium you pay toward investment options like stock funds, bond funds, or money market funds that are held by your insurance company in an investment portfolio. Because these different investment options can vary in their values, the cash value of your variable life insurance policy can also vary.

As with a traditional whole life insurance policy, a variable life policy offers both a death benefit and a savings vehicle. The variability of a variable life insurance policy means that your accumulated cash portion of the policy can grow much more quickly than a comparable whole life policy, but the variable policy is also associated with greater risk. If the investment portion of the policy performs poorly, there is the possibility that the death benefit may actually decrease in value. Most variable life policies have a minimum amount below which the death benefit is not allowed to drop.

The investments you select within your variable insurance policy earn interest, which can be paid out to you in cash, used to decrease the premiums you pay for your insurance policy, increase the cash value of the policy, or applied toward your death benefit. This type of insurance offers a wide selection of investment options and some of the greatest potential for lucrative interest earnings. As with other types of permanent life insurance, you can borrow against the policy`s cash value once it reaches a certain level.

The investment risks associated with a variable life insurance policy mean that variable life insurance has been determined to be an investment product rather than an insurance product, and as such is regulated as a security under U.S. securities legislation. Variable life insurance must be sold accompanied by a prospectus for this reason.

Variable life insurance is a good choice for people who want permanent insurance but also can live with a higher level of risk. To be comfortable with variable life insurance as your choice for an insurance policy, it is helpful to have at least a basic level of knowledge about investing.