What is Variable Life Insurance?: The Basics of a Variable Life Insurance Policy

Variable life insurance offers flexible terms and several program options, including the ability to change the death benefit amount, as well as the timing and amount of the premium payments. Variable life insurance is another form of permanent life insurance. It's meant to be used over longer periods of time, but offers options to reduce the term or benefit at almost any stage.

Premiums for this policy are paid into insurance investment accounts and can vary based upon the performance of the underlying investments. The insured can direct the accounts and the investments, taking on as much risk as they desire, while allowing for the potential for higher-than-normal growth in policy value.

If investment performance is good, cash value and death benefits can increase. If investment performance is poor, death benefits and policy cash value will decline accordingly. This type of policy is best for those who may need to change their premiums to follow their changing income levels, and also those who have a higher risk tolerance for investing.

Payment Flexibility with a Variable Life Policy

A unique feature of the variable life insurance policy is your ability to design a payment plan that fits your income level. You can pick monthly, quarterly, or yearly premiums that are at a set amount. You can also choose to vary your payments paying more some months and less during others. Variable life insurance even gives you the options to stop payments altogether while keeping the policy active.

The Value of a Variable Life Insurance Policy

Variable life accumulates cash value, also known as surrender value. You can borrow against the value of the policy, though doing so may reduce the death benefit and ultimate cash value.

Tax Advantages of Variable Insurance

As you pay premiums into your policy, the insurance company invests your money in stocks, bonds, and other market investment vehicles. This allows your policy to grow its cash value and remain income-tax deferred. This means as your policy gains value no tax is due on that investment income.

Additionally, the death benefit paid to your selected beneficiary may be free of most federal and state taxes.

Other Options with Variable Life Insurance

Many carriers allow more flexible program options with variable life insurance, including survivor income benefits that your beneficiary can not outlive, long term care insurance, guaranteed death benefits, and allowance of policy changes in the event the insured becomes disabled.