What Is Variable Life Insurance & Who Should Buy It?
Variable life insurance allows you to invest some or all of the policy's cash value in stocks or bonds. This type of life insurance is best for those with high incomes, specific life insurance needs and high risk tolerance.
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By Mandy Sleight
MS
Licensed Insurance Agent
Mandy Sleight is a licensed property, casualty, life and health insurance agent with 20 years of experience in the industry. She has worked for major insurance companies like State Farm and Nationwide, and most recently as the Operations Coordinator for a startup employee benefits company. Sleight holds a business administration and management degree from the University of Baltimore and a master's in business administration from Southern New Hampshire University. She uses her vast knowledge of insurance and personal finance to create easy-to-understand and engaging content to help readers make smarter choices with their budgets and finances.
Edited by Casie McCoskeyCasie McCoskey is a professional editor passionate about providing people with accessible information on personal finance. Before MoneyGeek, she worked in the legal field, drafting and editing briefs and motions.
MS
By Mandy Sleight
MS
Licensed Insurance Agent
Mandy Sleight is a licensed property, casualty, life and health insurance agent with 20 years of experience in the industry. She has worked for major insurance companies like State Farm and Nationwide, and most recently as the Operations Coordinator for a startup employee benefits company. Sleight holds a business administration and management degree from the University of Baltimore and a master's in business administration from Southern New Hampshire University. She uses her vast knowledge of insurance and personal finance to create easy-to-understand and engaging content to help readers make smarter choices with their budgets and finances.
Edited by Casie McCoskeyCasie McCoskey is a professional editor passionate about providing people with accessible information on personal finance. Before MoneyGeek, she worked in the legal field, drafting and editing briefs and motions.
Updated: May 22, 2024
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Variable life insurance combines the security of a death benefit with the growth potential of a tax-deferred investment portfolio, making it a multifaceted financial tool. This permanent life insurance policy allows you to invest in various options such as mutual funds, bonds and stocks.
While it offers significant cash value growth potential for those with a tolerance for risk, there may be more economical choices for some. Understanding how variable life insurance works, its advantages, limitations and who it's best for can help determine if it fits your life insurance needs and goals.
Variable life insurance is permanent life insurance offering up to 50 investment options to provide higher cash value growth potential.
Various factors, including age, health status and investment choices, determine the cost of variable life insurance. This type of policy is generally more expensive than other life insurance options due to its investment component and associated management fees.
Variable life insurance offers both a death benefit and the potential for tax-deferred investment growth. However, it comes with higher fees and the risk associated with market investments.
Variable life insurance is a permanent life policy offering higher cash value growth potential from investments in a portfolio with up to 50 options, including bonds, stocks and mutual funds. This capacity for higher growth potential comes with higher fees than other permanent life policy types. With so many volatile market options, the policy has variable cash value, hence the name variable life insurance.
These policies offer lifetime coverage only if the market investments perform well or the premiums prevent the policy from lapsing. The death benefit can vary, too, depending on the policy.
Here’s how variable life insurance compares to other types of life insurance.
Variable life insurance offers several death benefit options. Choose from a fixed death benefit, the face amount plus cash value or the face amount plus premiums paid.
Variable life insurance is like other permanent life policies, which offer tax-deferred growth and the option to borrow against or withdraw money from the cash value fund. Cash value growth depends on market conditions and portfolio choices.
Only mutual insurance companies offer the opportunity for dividends, which aren’t guaranteed. All permanent life policies, including variable life insurance, can earn dividends from a mutual life insurance company. You can take the dividends as cash and use them to pay premiums, pay for outstanding loans from the cash value or buy paid-up additions.
Permanent life policies, including variable life insurance, can include a rider for guaranteed insurability for children. At predetermined ages or life events, the insured or the policy owner can elect to buy more life coverage without proving insurability through a medical exam or health questions.
As an investment product, variable life insurance policies are regulated securities and are subject to state insurance regulations and federal securities laws.
The cost of variable life insurance can vary greatly, as can its fees and other charges. The cost is typically much higher than other permanent life policies and term life insurance.
Performance can vary in a variable life insurance policy. Risk tolerance and market conditions depend on investment choices with either policy.
Generally, the death benefit received by beneficiaries is tax-free. The cash value component grows on a tax-deferred basis, meaning you won't pay taxes on earnings until you make a withdrawal. If you surrender the policy, any gains above the premiums paid are taxable.
Choosing the right life insurance policy involves carefully evaluating its advantages and disadvantages. Weighing these factors will help determine if variable life insurance aligns with your financial goals, needs and risk tolerance.
Investment Growth Potential
The policy allows for higher cash value growth through market investments, appealing to those keen on maximizing investment returns.
The cash value in a variable life insurance policy grows tax-deferred, offering potential tax benefits when planned correctly.
Flexible Premiums and Death Benefits
This policy allows adjustments to premiums and death benefits within certain guidelines, offering financial flexibility.
