What is Variable Life Insurance?
Variable life insurance is a variation of whole life insurance that allows the cash value of a policy to be invested in stock, bond or money market portfolios. Investors can elect to move from one portfolio to another or can rely on the company’s professional money managers to make such for them. As with whole life, the annual premium is fixed, but part of it is earmarked for the investment portfolio. Earnings from a variable account are tax-deferred until distributed. Income is then taxed only to the extent that it exceeds the total premiums paid into the policy.
Variable life insurance is for those who want to tie their life insurance policy to the performance of the financial markets. You decide how your net policy values are to be invested. Your cash value may have the opportunity to accumulate more rapidly than with other cash value policies, but you incur additional risk. If market performance is poor, your death benefit may decrease, and you may have to pay higher premiums to keep the policy in effect. As with whole and universal life policies, you may borrow against or withdraw the cash value at anytime. Keep in mind that loans and withdrawals may reduce cash values and the death benefit. Read your policy carefully for any possible charges associated with these transactions. These policies are sold by prospectus, a valuable disclosure document, that you should also read carefully.
Related Questions
- Why is it better to have an irrevocable life insurance trust purchase alife insurance policy on the donor, rather than have the heirs themselves own a permanent life insurance policy with the premium paid by the heirs with gifts by the now- living donor?
- Are life insurance benefits considered part of a decedents estate?
- Do life insurance renewal commissions count as wages?
