Variable life insurance is a permanent life insurance option that offers people an investment component. Like all forms of life insurance, variable life insurance is used to protect your family’s financial future in the event of your death. When you pass away, the beneficiaries listed on your insurance policy will receive a death benefit, which can be used to pay for funeral expenses, pay of debts, and help them ease their transition as they adjust their lifestyle to one less source of income.
Variable life insurance comes with a cash value account, which is invested in a number of sub-accounts available in the policy. The basic variable life insurance policy will have several sub-accounts to choose from with some polices offering more than 50 options. These sub-accounts invest ones premiums into portfolios, which can be comprised of stocks and bonds. The cash value will fluctuate based on the investment performance. Every month the insurance company will use the cash value to pay the policy’s charges, which include the cost for insurance. The policy will remain in tact until the cash value is unable to pay these monthly charges.
Policyholders are able to withdraw cash or take a loan against it, but enough money needs to remain in the account to pay the insurance fees. The insurance company will warn policyholders when the money is too low to pay premiums.
The investment aspect of variable life insurance polices is what many people are attracted to. When one invests in a standard life insurance policy, they pay premiums to the insurance company, with the promise that they pay the beneficiaries a sum at the policyholder’s death. Variable life insurance gives the policyholder the ability to allocate part of their premium to invest in bonds, stocks, and investment funds. Because of this, the policyholder can gain more money than they put into it, providing permanent protection for the beneficiaries when the policyholder dies.
The beneficiaries can have permanent protection because the variable life insurance policy offers them the option of continually and sustainably drawing on the returns from the investments for an extended period of time without touching the principal if the policy’s investments performing well.
The earnings made from these investments are not taxed until the policy is yielded (2013). If the policyholder manages the investments successfully, the earnings from hem can be used to pay the premiums for the policy, growing to the point where the policy is self-sustained.
Variable Life Insurance is complicated and requires the advice of a properly licensed agent.
It is important to understand that when you chose to purchase a variable life insurance policy, you are becoming an investor. There are risks involved in these investments, because of the dependence on the underlying investments to perform well. The capital market is unpredictable. If you are considering a variable life insurance policy you should sit down with your local independent life insurance agent to discuss these risks and see if a policy is right for you.
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