Variable Life: The Essentials

We are regularly asked to define variable insurance, as most consumers find it a bit more complex to decipher than more basic types of life insurance. The questions most frequently asked include:

1. How exactly does it work?

2. Is Variable Life Insurance affordable? / Are there smart bargains out there?

3. What are the rates?  request a quote now »

4. What is the best insurance agency to speak with?

And the most important question of all - will it work for YOU? Only you can decide that, but if you are know a bit about variable funds and securities and are comfortable with a bit of risk; variable life insurance might be something to consider.

Summarizing Variable Life:
Variable life insurance features two distinctive "parts" – the investment/savings portion and the life insurance. This is similar in structure to a universal life policy (not to be confused with variable universal life insurance). However, universal and variable split paths at this point. Universal insurance offers you a savings account that is typically considered "safe." So long, as your premiums do not exceed the cost of insurance, the savings portion will continue to grow. However, variable life's investment portion is directly tied to the market.

The investments for variable life are made in mutual funds, stocks, bonds, real estate funds, money market funds, mutual funds, and etcetera. Typically, people choose to invest in a variety of ways. For example, you may opt to contribute 50% towards Global Equities, 25% in bonds and another 25% in the money market. Keep in mind, that you can re-allocate your distribution of funds in keeping with economic times. Given the current economic downturn, you will undoubtedly find that many have chosen to move their funds to a simple money market. While you certainly won't earn much interest; you can sleep a bit easier at night knowing your money is much safer!

The Pros and Cons:
Proponents of variable life insurance will be quick to share this major advantage – your beneficiary will receive the entire value of the actual account; even if that amount exceeds your death benefit! If there is an economic slump and your account value should drop, there is still a level that your death benefit will not dip below. However, please consider that while your investments could earn you enough to pay for your policy; you can also experience a significant loss! In the event that your investments are unable to fund your policy; you will be undoubtedly have to pay a higher premium, in order to maintain your desired death benefit. Should this occur, you may find that your policy becomes unaffordable.

Clearly, variable life is not the right choice for everyone. In addition, to the concerns detailed above, you do have to be willing to monitor your investments and make changes as needed. In this fluid marketplace, major changes can occur overnight and most do not have the time to monitor the fluxes that closely. Now you may trust your portfolio to an agent/broker; however, even the best agents cannot entirely predict the marketplace and will be unable to completely protect you from losses. As with most portfolios, the goal is simply to have more gains than losses over the years. If you opt for a variable life, please be prepared for a bit of a bumpy ride!

Another major concern is that no matter how successful your investments may be; you will be unable to withdraw your money tax-free. This fact has led many companies to discontinue offering variable life. Universal life offers much more security and flexibility, so it tends to be preferred. 

It can be a bit of a struggle to find a company that offers variable life policies. Selling this type of insurance requires a federally approved securities license – a license the average life insurance broker typically does not posses. Once you find a qualified company, it is important to do your research! Check out their history, including financial status, record of gains and losses, as well as how they handle the accounts of individuals. You may find that unless you invest more than $500,000 your account is not monitored as carefully. Typically, smaller accounts are traded in "blocks." So unless, you have the expertise and time to devote to carefully monitoring your investments; it is vital that you select an agent that will work hard on your behalf! 

Now that you have some basic facts at hand, you are more prepared to consider variable life insurance and the primary question – is it right for you? To help you even further, we encourage you to utilize our services to request a quote. (Please be aware that rates for non-smokers are more competitive than for smokers.)