Best Variable Life Insurance

Variable life insurance offers permanent insurance coverage with a death benefit payable throughout the policyholder’s life and a cash value component. What makes variable life insurance unique is that the cash value component can be invested in a broader array of stock and bond funds.

Policyholders who are prepared to accept the investment risk should consider the following points that make for a best-of policy: 1) Wide range of investment options, 2) A stable insurance company, 3) Low management  and administrative fees, 4) Customizable optional riders, and 5) Low withdrawal charges.

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Is a Variable Life Insurance Policy Right for You

Before even discussing the factors that make for a good policy, first, let’s sure you’re a good candidate for variable life insurance. Variable life is for people who want permanent life insurance coverage, who are interested in investment growth and who are willing to accept the risks that go with that. Policyholders who are impatient with the slow growth of their whole life insurance cash value accounts might consider variable life as a way to boost their investment earnings for the long term.

Unlike whole life insurance, the cash value of a variable life insurance policy is not guaranteed.  Policyholders who want the security of a guaranteed cash value should stick with whole life insurance or universal life insurance.

But for policyholders who are more risk-tolerant and who see their life insurance policy in part as a long-term investment, variable life insurance offers greater options for places to put their money. With variable life insurance, policyholders can choose from a variety of stock and bond funds to invest their cash value, similar to a mutual fund.

Buyers of variable life insurance tend to be savvy investors with a broad, diverse financial portfolio. They understand the risks and rewards of investing, and they are prepared to include their variable life insurance policies as part of that overall investment mix.

Finding a Wide Range of Investment Options

With variable life insurance, as with other types of investments, the key is to diversify among a wide range of investments including stocks and bonds. “Don’t put all your eggs in one basket,” as the old saying goes.

The best variable life insurance policies offer a wide variety of investment options. These offerings vary by insurance company – some companies have only a few funds for their variable life customers to choose from, while others have a more robust assortment that is more comparable to a mutual fund.

Finding a Stable Insurance Company

Variable life insurance delivers the potential for higher rewards in terms of cash value growth, while also offering certain risks. Just as with any other investment decision, policyholders need to do their research and should feel confident in the financial strength and trustworthiness of the insurance company – before they sign on the dotted line.

Variable life insurance is not guaranteed by the FDIC; this is not like putting money in a bank account. The most important thing is to check the financial strength ratings of any insurance company that sells variable life insurance – policyholders should try to find a good match between the strength of the insurance company, the quality of the investment options, and the overall suitability of the policy for the policyholder’s financial goals.

Getting the Lowest Management and Administrative Fees

Whenever you buy a life insurance policy, you pay fees as part of the total cost of the premium – sales commissions, administrative fees, and charges related to the insurance policy itself. With variable life insurance, there are additional fees for the management of the policy’s investment account.

These fees vary by company and even by the individual policy, based on the investment choices that each policyholder makes – some funds are more expensive than others. But to get the best deal on a variable life insurance policy, people need to pay close attention to the fine print and make sure they understand the fees involved. Compare a few different companies before signing a contract.

Even if you can save 1% - 2% on fees each year, over the course of a lifetime that can add up to thousands of dollars in additional investment returns. 

Looking for the Most Customizable Riders

Optional riders are a good way to add some flexibility to a variable life insurance policy. Some riders allow policyholders to buy additional death benefit coverage in exchange for higher premiums, while other riders can allow the policyholders to draw down a small percentage of the death benefit value to help pay for long-term care or other qualifying expenses.

For example, an acceleration rider might allow the policyholder to take an “advance” on the death benefit. If a policyholder had a $100,000 variable life insurance policy and suffered from a serious health condition, an acceleration rider might allow the policyholder to obtain a monthly payment of 2% of the policy’s face value – in this case, $2,000 a month.

Another type of rider, an extension rider, allows policyholders to draw additional long-term care benefits from the life insurance policy, even in addition to the full amount of death benefit coverage.

Other common types of riders include the children’s term rider (to provide term life insurance for the policyholder’s qualifying children), accidental death benefit rider (providing additional death benefit if the policyholder dies due to accidental causes), and enhanced disability rider (reducing the policyholder’s premium payments if the policyholder becomes completely disabled).

Not all insurance companies offer the same choices of riders for their variable life policies. But finding the right riders for you particular situation can make the difference between an average variable life policy and the best one!

Getting the Lowest Withdrawal Charges

When buying variable life insurance, most people pay so much attention to investment growth that they forget to consider what happens someday when it’s time to withdraw some money. But the truth is that in addition to sales commissions, management and administrative fees, withdrawal charges are one other place where policyholders need to be mindful of expenses.

Most variable life insurance policies do not allow early withdrawals – any early withdrawal of the cash value is considered a surrender of the policy, resulting in loss of the death benefit coverage. Withdrawals are usually not allowed until the policyholder has had the policy for a certain number of years, and even then some policies charge withdrawal fees related to selling the investments and closing the account. 

Policyholders need to carefully review the details of their contracts to make sure they understand the fees and implications of making a withdrawal from their variable life insurance investment accounts.

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