Variable Life Insurance Policy

Variable Life Insurance Policy

A form of whole life insurance, variable life insurance provides permanent protection to the beneficiary upon death of the policy holder. This type of insurance is generally the most expensive type of cash-value insurance because it allows you to allocate a portion of your premium dollars to a separate account comprised of various instruments and investment funds within the insurance company's portfolio, such stocks, bonds, equity funds, money market funds, and bond funds. Although most variable life insurance policies guarantee that the death benefit will not fall below a specified minimum, it is seldom guaranteed. In addition, because of investment risks, variable policies are considered securities contracts and thus regulated under the federal securities laws and must be sold with a prospectus.

Notes:

The major advantage to variable policies is that they allow you to participate in various types of investment options while not being taxed on your earnings (until you surrender the policy). You can also apply interest earned on these investments toward the premiums, potentially lowering the amount you pay. However, due to investment risks, when the invested funds perform poorly, less money is available to pay the premiums, meaning that you may have to pay more than you can afford to keep the policy in force. Poor fund performance also means that the cash and/or death benefit may decline, though never below a defined level. Also, you cannot withdraw from the cash value during your lifetime.

See also: Cash Surrender Value, Life Insurance, Permanent Life Insurance, Separate Account, Term Insurance, Universal Life Insurance, Whole Life Insurance

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Variable life insurance policy

A whole life insurance policy that provides a death benefit dependent on the insured's portfolio market value at the time of death. Typically the company invests premiums in common stocks, so variable life policies are referred to as equity-linked policies.