Variable life insurance is a type of permanent coverage that allows you to choose your own investments, with many tax advantages. With the right investing know-how, you could profit considerably from this freedom, while still maintaining the protection that all insurance buyers seek. But use caution!
Explains how variable life insurance works.
Describes the pros and cons of variable coverage.
Makes clear who benefits the most from these policies.
Premiums can vary by as much as 50% for the same coverage and options, so it pays to get quotes from as many reputable insurers as possible.
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Permanent life insurance with the freedom to control your investment portfolio is called variable life insurance.
Generally, variable life insurance is the most expensive type of cash value insurance. This is because unlike other types of permanent policies, variable life insurance gives you complete control over your investments - be they stocks, bonds, or money market funds.
The number of times you can change and update you investment portfolio is usually unlimited, although this is something you will need to confirm with your insurance company.
Because many of the benefits of variable life insurance are wholly dependent on your ability to invest successfully, you should be absolutely certain that you understand all implications before purchasing this type of policy.
With the additional freedom of variable life insurance comes increased risk. Because your policy's cash value depends on the investments you make, your insurer cannot guarantee a minimum balance for this part of your policy.
Your insurer will be in no way responsible for your investment decisions, and if your investments perform poorly, you may be asked to forfeit your savings.
However, if you invest well, your cash value gain can be substantial (much more so than with other policy types).
There can also substantial tax advantages associated with variable policies. The cash value portion of the policy is not taxed until the policy is redeemed. These profits, unlike those from standard personal investments, are not subject to capital gains tax even when you change investments - which means they can grow tax-deferred.
To get in contact with reputable insurers who offer variable life insurance in you area, contact one of our partner carriers. They will provide you with free quotes and advice on how to proceed should you choose to take on a variable life policy. All in about thirty seconds of your time.
In short, only those who are comfortable with their own ability to invest should ever buy variable life insurance.
But you may already know this - those who trade stocks multiple times a month, or have mutual funds or other investment accounts probably feel like they have a pretty good grasp of their own ability.
Well, then you probably also know that the market is a terrible mistress, and a few mistakes can have serious financial consequences.
Basically, if you feel that you are a smart and careful investor, and don't mind the extra cost, variable life insurance is probably the most sound choice for a permanent policy.
Since in a standard whole life policy the insurance company invests very conservatively, generating small returns, you stand to gain more using your own (or a financial advisor's) expertise to bring in better returns.
Having an insurance policy with an associated investment portfolio can be very attractive, especially since the absence of capital gains taxes can make it more profitable than other type of investment account.
The tax implications of a variable policy cannot be overstated, as the savings can be truly significant. But these are not "one size fits all" solutions.
To see if this form of policy is something that would fit your finances, contact one of our partner carriers. They will provide you with free quotes and advice on how to proceed should you choose to take on a variable life policy. All in about thirty seconds of your time.