Variable Life Insurance
Variable life insurance combines the security of lifelong protection with the flexibility of an investment portfolio. Variable life insurance is a form of permanent insurance, which covers you throughout your life and provides a cash value that you can borrow against to cover retirement or educational costs. With this versatile type of coverage, you can provide for your beneficiaries' security after your death as well as supplementing your financial resources in the present.
The term "variable" refers to the freedom you have in choosing which of your providers' stocks, bonds or mutual funds you want to invest in. Returns on these accounts, along with the total worth of your plan, may vary depending on their profitability. Although you can also find term life insurance online, traditional whole life insurance policies give you the opportunity to participate in the investment component of your provider's account. However, with whole life agreements, you don't have the option to choose how your premiums are allocated.
With variable life insurance, you have a wide range of options to choose from when it comes to investing a portion of your premiums. This feature gives you control over the level of risk you assume when you contribute a portion of your fees to your insurer's accounts. You have the flexibility to fine-tune your allocations according to the ups and downs of the market.
Variable Vs. Universal Life Insurance
Variable life insurance is a form of universal life insurance. In addition to having a face value, or a death benefit to survivors, universal policies have a cash value, which includes the dividends and interest that your funds earn over the life of your contract. With a universal plan, your insurance company manages your allocations and determines how much interest to credit to your funds
With variable life insurance, you can select which of your provider's stocks or bonds to invest in, based on your risk tolerance and your expectations of a profitable return. Variable policies give you more control over your money, which may give you the potential to earn greater cash value over the years. However, you may also see more fluctuations in your policy's net worth as the market changes.
Both variable and universal plans allow you to make adjustable payments that can range from zero to the maximum allowed by law. As long as the value of your variable policy minus insurance costs is enough to cover your premiums, you can elect to pay nothing in a given period or continue to make payments to the extent that your contract allows. Many insurers guarantee death benefits to your survivors until you reach a certain age, as long as you've maintained minimum contributions over the course of your contract.
How Variable Life Insurance Works
When you pay your scheduled premiums for your variable life insurance, your insurer deducts part of your payment to cover the costs of insuring you, paying taxes and providing for basic operations. The rest of your contribution is allocated to the investment accounts that you've selected. The company may also charge you monthly fees for managing these investments.
Along with adjustable payment schedules, variable plans generally offer flexible death benefits. If your need for protection changes, you can reduce or increase your level of security, provided that your policy has enough value to accommodate the change. Because the total worth of your funds can vary according to how your provider's stocks or bonds perform, you should ask your insurer about securing a guaranteed death benefit for your loved ones.
When it comes to planning for your children's education, your own retirement or the distribution of your estate, variable plans offer several tax advantages, especially if you have a higher income and net worth. After retirement, you can borrow against your funds with few or no tax penalties. You can also use the tax-deferred status of your death benefits to increase the value of your estate to your survivors.
If you've contributed to your plan for a sufficient length of time, you can borrow against the dividends you've earned to help finance your children's college education. Because the federal government does not consider the cash value of your variable life insurance as part of your contribution to your child's tuition, your child may qualify for more financial aid. The additional assistance you're able to give your children can help them meet their academic and professional goals.
Consider the versatility and earning potential of variable life insurance when you're collecting quotes and comparing rates. If you're willing to make a lifelong commitment to maintaining this important financial relationship, you may reap considerable rewards when you're ready to retire. Let your money continue to grow through a plan that offers stability, security and the opportunity to earn increased dividends by investing according to your preferences.
