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If you’re a young, healthy individual, you may want to consider purchasing variable life insurance. This type of insurance is an investment that can provide you with financial security. Although it is similar to whole life insurance, variable life insurance provides you with greater control over the amount of the death benefits and the cash value of a policy.
The Role of Variable life insurance The premiums in a variable life insurance may increase or decrease, depending on the current market. Variable life insurance can be considered as a type of investment portfolio, because part of your payments are used to pay for life insurance coverage, and approximately 4% are used to help you build cash value. The specific amount varies according to the terms in your insurance policy. You Maintain Financial Control One of the main advantages of variable life insurance is the fact that you maintain control over how you want to invest your money. As the owner of a variable life insurance policy, you can choose whether to invest in bonds, stocks, etc. In addition, your death benefits and cash value will change according to changes in the market. You can decide exactly how much money you want to reinvest and how much you want applied to your insurance policy. You have more control with this type of policy and you can earn more money when the market is up. Insurance companies always issue a prospectus which explains a variable life policy. Make sure you read the document thoroughly before signing any policy. All policies are regulated by the Commission of Insurance and the Securities and Exchange Commission. The Risk of Variable life insurance In addition to greater financial control, you also take a higher risk when you purchase a variable life insurance policy. Although very rare, the investment choices for a variable life insurance policy may lose their value, causing the policy to lapse. This means that it will no longer be considered valid. Fortunately, the majority of insurance companies offer guaranteed minimum death benefits to prevent this situation. In this case, you will have to pay a minimum monthly premium to maintain your variable life insurance policy. Additional Benefits of Variable life insurance Because variable life insurance isn’t considered a strict investment, all of the monetary gains from a policy are tax deferrable. This enables insurers to avoid paying estate taxes. Many individuals purchase a variable life insurance policy for their beneficiaries who can choose to borrow against a policy or withdraw the cash value from it. Just like a whole life policy, the more cash value you withdraw from a variable life insurance policy, the lower your death benefits. Another advantage of variable life insurance is the ability to change your investment options without having to pay any transaction fees or taxes. However, most insurance companies limit the number of annual transactions to approximately twelve. In addition, most insurance companies offer survivorship policies. This means that two individuals are covered under one variable life insurance policy, but benefits are only paid if both people die. This may be a preferable option if you are unable to obtain life insurance on your own because of health problems. As you can see, there are many advantages and disadvantages to purchasing variable life insurance. In addition to the financial control and tax benefits, there is also a higher risk than other types of insurance. Make sure to weigh your options carefully so you can decide if a variable life insurance is right for you. |
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