Variable life insurance is permanent life insurance and provides protection for life. As long as premiums are paid, a death benefit is paid to the beneficiary. The premiums for variable life insurance policies are designed to remain level over time. In addition, these policies accumulate cash values on a tax-deferred basis with the potential for higher rates of return than traditional whole life policies. Variable life insurance policies' cash values vary with the investment results of funds chosen by the policy owner. The policy owner is given a choice of investment options which are usually stock, bond and money market funds. Unlike whole life insurance policies which have guaranteed cash values, the cash values of variable life insurance policies are not guaranteed. The cash values of variable life insurance policies can be used for a variety of options:
- The policy can be surrendered at anytime for the cash surrender value.
- The policy owner can take out a loan and use the cash value as collateral.
- The cash values may be used to pay premiums for a certain period of time.
- The cash surrender value can be used to supplement retirement income.
Variable life insurance policies are valuable because they provide permanent protection and may accumulate cash values; however, these policies carry more risk than traditional whole life insurance policies. Individuals considering purchasing a variable life insurance policy should be experienced investors in equity investments.
The cash values of variable life insurance policies may also be affected by a life insurance company's future performance. Some factors that influence a life insurance company's performance are expenses and mortality experience.
