Variable Life Insurance Advantages


One complaint that many policyholders have about whole life insurance is that the cash value grows so slowly – this is the central advantage of variable life insurance; it enables policyholders to seek higher returns on their life insurance cash value.

Advantages of variable life insurance include:

  • Investment options – Invest your life insurance cash value in a broader range of investment offerings, including stock and bond funds.
  • Higher growth potential – Frustrated with slow growth and fixed interest rates? Put your cash value to work.
  • Guaranteed death benefit – Ensures financial protection for beneficiaries, no matter what happens with the stock market.
  • Fixed payments – A steady payment schedule creates discipline and “forced savings” for long-term investments.
  • A real “investment” vehicle – Enables policyholders to add their life insurance policies to their overall investment portfolio.
  • Works like a mutual fund – Through a series of separate accounts, policyholders can invest in a variety of stocks and bonds while ensuring financial protection for their beneficiaries.  

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Investment Options

Other types of permanent life insurance – whole life insurance and universal life insurance – only allow the cash value accounts to be put into low interest cash or money market funds. The interest rates are fixed and the money is safe, but it also grows very slowly.

Variable life insurance is a good solution for people who are impatient with the slow growth of their life insurance cash value and who are eager to achieve higher returns. Instead of being stuck with slow-growing interest rates, variable life insurance enables policyholders to tap the long-term growth potential of the stock and bond markets.

Investment options are different according to the offerings of each insurance company, so policyholders need to do their research and ensure that they’re getting a diversified mix of investments with their variable life insurance policies. But the best life insurance companies will offer a broad array of U.S. and international stock and bond funds.

As with any investment, it’s important to remember that there is an element of investment risk – variable life insurance has the potential for loss as well as gain. But the big advantage here is that policyholders can break out of the monotony of fixed-interest cash value and put their money into a wider range of investments.

Higher Growth Potential

Variable life insurance has the potential to deliver higher rates of investment returns over time. With most permanent life insurance, the cash value is barely going to grow enough to keep up with inflation. The money is guaranteed, and that can be comforting to a lot of policyholders, but for savvy investors who understand the stock market, it can feel frustrating to have their life insurance cash value trapped in a low-interest prison.

Variable life insurance enables policyholders to treat their life insurance cash value like any other part of their investment portfolio, and seek the biggest possible gains.

Guaranteed Death Benefit

Variable life insurance has certain risks, primarily investment risk – the risk that the stocks and bonds in the policy’s investment accounts will drop in value. However, one aspect of a variable life insurance policy that is never at risk is the death benefit, which is guaranteed.

Unlike universal life insurance, where the death benefit can change according to the decisions of the policyholder, variable life insurance policies have a fixed death benefit that will always be there to provide protection to the policyholder’s beneficiaries. Stock and bond markets may go up or down, but the death benefit of a variable life insurance policy will always stay the same.

Fixed Payments

Variable life insurance policies offer consistent payment schedules with fixed premium amounts. Payments never increase and always are paid on the same date each month. This creates a helpful “forced savings” effect, as the policyholders make regular premium payments and by extension make investments in their accounts.

The fixed payment schedule also causes policyholders to dollar cost average their investments, since they are usually adding the same amount to their investment accounts each month.

A Real “Investment” Vehicle

Most permanent life insurance products are not really “investments” because they do not offer any real chance of long-term growth. Variable life insurance offers policyholders an option to obtain life insurance coverage while still being able to harness the long-term growth potential of the stock and bond markets. Variable life insurance is a true investment that can be tracked and measured along with the rest of the policyholder’s financial portfolio.

Works Like a Mutual Fund

Variable life insurance policies have an assortment of separate accounts offering investments in stock and bond funds. Policyholders can use these separate accounts in the same manner as a mutual fund to match their investing style, risk tolerance and long-term investment goals.

For example, policyholders that are close to retirement can design an assortment of investments that will be more conservative and less exposed to stocks. Policyholders who are just starting their careers can build an allocation that is more aggressive, with a higher percentage of stock funds. Variable life insurance gives policyholders the tools to adapt their life insurance policies to match their target investment allocations for any stage of life.

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