What is variable life?

One of the advantages of a variable life insurance policy is that high returns on policy value are not subject to tax until the cash value gains are effectively withdrawn.

Variable life is a type of life insurance that is characterized by a flexible cash value and death benefit. The reason for the flexibility is that the payout associated with a variable life policy is governed by the performance of the underlying investments that fund the coverage. The actual structure of these types of policies follows policies common to money market and traditional stock accounts.

Variable life is characterized by a flexible cash value and death benefit.

While a variable life policy does not include fixed income funds when it comes to death benefits and cash value, most versions guarantee some coverage rate despite market performance. This is particularly true with the death benefit. Often, the policy will identify a minimum payout amount even if the underlying investments are not doing well. This provision helps to assure the policyholder that at least a minimum return on the policy will be realized.

One of the advantages of a variable life insurance policy is that high returns on the policy value are not subject to tax until the cash value gains are effectively withdrawn. This is different from equity funds and bond funds, where taxes are applied at the time the gains are realized. When combined with the obvious benefit of unlimited potential to accumulate more value than a fixed rate life policy, the variable life model becomes very attractive.

However, it is important to note that a variable life policy will also involve the same risks associated with investing in stocks and bonds. This means that it is a good idea for the policyholder to be actively monitoring market conditions and performance in order to be aware of the current value of coverage. While the policy may include clauses that guarantee a minimum return, it is possible, over time, to pay more premiums than the guaranteed amount. Care must be taken to weigh all the factors before choosing a variable life insurance policy.

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