Variable Life Insurance: Performance Possibilities for Young Investors
If you are a younger person, still in your working years and want the possibility of leaving a high life insurance benefit to your heirs without the corresponding high premium, variable life insurance might be an option.
Variable life is hard to find because the company that sells it to you must have agents who are licensed in securities. Part of the premium is invested in the stock market and can increase the benefit payout of the life insurance itself. Since today’s variable life policies also come with a minimum guarantee that as long as you pay a certain premium your life insurance will not drop below a contract level, you will have life insurance even if the value of the investments themselves drops for a time.
Variable life is defined as a type of permanent life insurance. You can borrow against it, but you cannot take cash out of it; if you cash it in, you could have a taxable event if your gain is much higher than the total amount of premium you paid. If, however, it is paid out to a beneficiary, it is tax free like any other life insurance policy.
Use our free service to locate quotes on variable whole life insurance. While you are looking however, you should also consider , also known as universal variable life insurance. Like variable life, variable universal take the accumulation account and invests it in stocks, bonds, mutual funds—or whatever the company has it its portfolio. The advantage to a universal variable policy is that you can actually take partial withdrawals from the accumulation account. As long as you pay the minimum premium OR maintain enough in the accumulation account to pay the cost of insurance, your face value will be maintained. If the accumulation account—or savings side—drops below the amount needed for the cost of insurance, and you fail to pay the required monthly premium, the universal variable policy could lapse just like any universal. Also, depending on the qualify of your investments, it is possible to lose the entire accumulation account and have to increase your premiums to keep the life insurance side from lapsing. Regardless, most investors who want variable life products prefer the variable universal over the variable whole life because of the increased flexibility.
If you purchase a variable universal life policy, you should also take Option B for the death benefit. An option A policy has a flat death benefit for the duration of the policy. While some companies will increase the face value if the account value grows in excess of the face value, some do not. If your heirs inherit an account in which the investment side far exceeds the death benefit, they could owe tax on part of the proceeds of the policy. With option B, the investment or accumulation is always added to the death benefit. Thus the face value of the policy increases over time (although it could decrease in poor economic years) and is always tax free to a beneficiary.
It is important to be aware of the fact that you can lose money in any type of variable life policy. While you will always have a minimum protected death benefit, you will also have years during which your investments take a loss as that is the nature of the market. Over time, your investments are likely to increase in value, but if you were to die during a down year, your heirs could receive much less than you intend. As long as you are aware of that drawback, a variable life policy can be a good investment with premiums less than you would pay for standard whole life or fixed universal policies.
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