The pros and cons of Variable Life Insurance

An Overview of Variable Life Insurance:

Variable Life Insurance provides permanent protection to your beneficiary upon your death. This type of life insurance is “variable” because it allows you to allocate a portion of your premium dollars to a separate account comprised of various investment funds within the insurance company’s portfolio. The value of the death benefit and the cash value may fluctuate depending on the performance of the investment portion of the policy. Although most variable life insurance policies guarantee that the death benefit will not fall below a specified minimum, a minimum cash value is seldom guaranteed. Variable is a form of whole life insurance and because of investment risks it is also considered a securities contract and is regulated as securities under the Federal Securities Laws and must be sold with a prospectus.

Pros:

Allows you to participate in various types of investment options while not being taxed on your earnings (until you surrender the policy). You can apply interest earned on these investments toward the premiums, potentially lowering the amount you pay. Variable Life Insurance offers the highest risk as well as the highest reward, and is best for families without dependents.

Cons:

You assume the investment risks. When the investment funds perform poorly, less money is available to pay the premiums, meaning that you may have to pay more than you can afford to keep the policy in force. Poor fund performance also means that the cash and/or death benefit may decline, though never below a defined level. Also, you cannot withdraw from the cash value during your lifetime.