Variable Life Insurance
Variable life insurance is a form of permanent life insurance. Like other forms of permanent life insurance, variable life insurance provides lifelong protection for the families of policyholders, paying a death benefit in the case of a policyholder’s demise. However, variable life insurance also allows policyholders to allocate premiums among a variety of investments that may reap greater (or lesser) dividends than standard policies.
Activating Variable Life Insurance
When you purchase a variable life insurance policy, it is important to find out when the insurance becomes effective. Due to the nature of variable life insurance, some policies may become effective on a different date than the date that the company issued the policy. An insurance representative can help to clarify the terms of the policy if necessary.
Advantages of Variable Life
Variable life insurance allows you to invest in different opportunities without being taxed on your earnings until you surrender the policy. The interest that is earned on investments can be put towards premiums to reduce the amount that must be paid each month. Good investment performance can result in higher cash values and death benefits.
Disadvantages of Variable Life
The main disadvantage of variable life insurance is the risk that comes with investing funds in options that are not guaranteed to perform well. If investments perform poorly, cash value and death benefits may be reduced substantially, although usually not below a defined level.
Variable life insurance is typically more expensive than other types of insurance. Variable life insurance policies are considered securities contracts and are regulated under federal securities laws, but you can never withdraw from cash values in your lifetime.
Choosing Variable Life Insurance
Variable life insurance is a good option for those that wish to purchase a permanent life insurance policy and have the money to invest in an option that may be more rewarding. Policies are sold with a prospectus that provides facts that policyholders will need to make informed decisions about which accounts within the company’s portfolio to invest in. Money market funds, stocks, bonds, and equity funds may all be available to invest in. Risks and rewards may vary among the different options.
Varying Premium Amounts
Since interest that is earned can be put towards variable life insurance premiums, premiums may vary from month to month. Some months, premiums may be paid in full by interest, while other months premiums may reach maximums that are specified by the Internal Revenue Code for life insurance. Some people may be attracted by this flexibility, while others may prefer more stability in premium amounts. This is an important consideration when selecting a permanent life insurance policy.
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