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What is variable life insurance and how does it work?
What Is Variable Life Insurance? A variable life insurance policy is a contract between you and an insurance company. It is intended to meet certain insurance needs, investment goals, and tax planning objectives. It is a policy that pays a specified amount to your family or others (your beneficiaries) upon your death.
What is the difference between variable life insurance and whole life insurance?
Unlike traditional whole life policies, for which the insurance company determines how the underlying investments are applied, the owner of a variable insurance policy is responsible for the investment decisions and asset allocation. He or she is also responsible for the gains or the losses.
What are the benefits of variable life insurance?
- A death benefit that won't decrease** as long as you continue to make your minimum premium payments on time.
- Flexible premium payment options.
- The potential to earn higher than average returns compared to other types of permanent life insurance.
What is variable life insurance in simple words?
What Is Variable Life Insurance? A variable life insurance policy is a contract between you and an insurance company. It is intended to meet certain insurance needs, investment goals, and tax planning objectives. It is a policy that pays a specified amount to your family or others (your beneficiaries) upon your death.
How do variable life policies work?
Variable life insurance is a permanent life insurance policy with an investment component. The policy has a cash-value account, which is invested in a number of sub-accounts available in the policy. A sub-account acts similar to a mutual fund, except it's only available within a variable life insurance policy.
What is the greatest risk to a variable life insurance policy?
The greatest risk in a variable life insurance policy is the risk of the investments. The insurance company doesn't guarantee any rate of return (in most cases) and doesn't offer protection for investment losses. Like any investment, the cash value component of a variable life insurance policy comes with risk.
Can you take money out of a variable life insurance policy?
If you're low on funds or simply want to make a large purchase, you have the option to withdraw some or all of your cash value. Depending on your policy and the size of your cash value, such a withdrawal could chip away at your death benefit or even wipe it out altogether.
What is the difference between whole life and variable life insurance?
A fixed death benefit pays a level amount to the beneficiary, regardless of increases or decreases to cash account. A variable death benefit, however, pays an amount determined by the cash value retained in the policy.
Is variable life insurance the same as whole life insurance?
Both variable life insurance and whole life insurance are forms of permanent coverage. Premiums are level and neither policy can be canceled due to changes in your health. Both types of life insurance also have a death benefit and accumulate cash value on a tax-deferred basis over time.
What is the difference between variable term life and variable whole life?
Term coverage only protects you for a limited number of years, while whole life provides lifelong protection—if you can keep up with the premium payments. Whole life premiums can cost five to 15 times more than term policies with the same death benefit, so they may not be an option for budget-conscious consumers.
Who is variable life insurance good for?
Variable life insurance is an insurance policy in which the payout amounts are determined by the performance of the underlying securities in the policy. Variable life insurance policies are considered more volatile than standard life insurance policies and are ideal only for those who can stomach the additional risk.
What is the disadvantage to variable life insurance?
The greatest risk in a variable life insurance policy is the risk of the investments. The insurance company doesn't guarantee any rate of return (in most cases) and doesn't offer protection for investment losses. Like any investment, the cash value component of a variable life insurance policy comes with risk.
What is the purpose of variable life insurance?
A variable life insurance policy is a contract between you and an insurance company. It is intended to meet certain insurance needs, investment goals, and tax planning objectives. It is a policy that pays a specified amount to your family or others (your beneficiaries) upon your death.
Is it good to have variable life insurance?
Under the right circumstances, variable life insurance can receive favorable tax treatment and offer the chance to make money in the market and not pay taxes. First, you have to qualify for a low premium. If the cost of insuring you is too high, it will significantly impede your cash growth.
Which is are the benefits of variable life funds?
Variable life insurance policies have specific tax benefits, such as the tax-deferred accumulation of earnings. Provided the policy remains in force, policyholders may access the cash value via a tax-free loan. However, unpaid loans, including principal and interest, reduce the death benefit.
What is the difference between term and variable life insurance?
Variable life insurance is a permanent life insurance policy, meaning it lasts until the policyholder's death, combined with a cash-value account invested in bonds or stocks. Plain vanilla term life lasts for a specific number of years and has no investment portion.
What are the benefits of variable life insurance?
- A death benefit that won't decrease** as long as you continue to make your minimum premium payments on time.
- Flexible premium payment options.
- The potential to earn higher than average returns compared to other types of permanent life insurance.
Why is it called variable life insurance?
Both variable life insurance and variable universal life insurance are types of permanent life insurance, which offers lifetime coverage. They both offer investment options, such as stocks, bonds and mutual funds. And they're both “variable” because their cash value can vary based on market performance.
What is the difference between variable life and whole life?
The biggest difference between the two is the growth opportunity and level of risk. The cash value of a whole life policy earns a fixed, relatively low rate of interest similar to a savings account or money market, and the death benefit is guaranteed.