As they used to say famously on the Rocky & Bullwinkle Show, “and now for something completely different” – variable life insurance. Along with whole life and its hybrid variable universal life, variable life is one of the three types of permanent life insurance policies. Each shares common features such as accruing tax-exempt cash value, remaining in effect until you die or cancel the policy (assuming you keep up the premiums) and providing guaranteed minimum, tax-free death benefits to your beneficiaries.
With variable life insurance, you have a guaranteed annual premium but no guaranteed cash value. However, you do have the flexibility to select which investments (usually mutual funds) you want for your specific policy. This flexibility is one of the most attractive features of a variable life insurance policy. It’s also the riskiest. Under the terms of a typical variable life insurance policy, you have the option of spreading your cash value across different funds and moving your money around without fees or penalties. Because there’s no inherent guarantee that the investment funds you select will prosper, there’s likewise no guarantee of cash value. However, your policy’s stated death benefits are guaranteed up to the age specified on your policy (usually 100) and they include coverage for funeral and burial expenses.
Another significant difference is that with variable life insurance you generally aren’t penalized if you miss a premium or two, either. As long as you make up the difference in the following month, your policy remains intact.
As with all permanent life insurance policies, you’ll get lower rates on your variable life insurance quote when you’re younger and presumably healthier.
A.M. Best, the independent company that ranks the financial health of insurance companies, suggests that having a variable life insurance policy may be an acceptable supplement for your retire income or a good way to increase death benefits for your beneficiaries that doesn’t require you to jump through added underwriting hoops. Still, variable life insurance isn’t for everyone, especially not the risk-averse. But if you want a life insurance vehicle that offers the potential for long-term tax-exempt investment growth, it may be worth discussing with your financial advisor.