Variable Life Insurance
Variable life insurance allows a person to invest in different types of funds such as money market, bonds, equities, and various combinations of different types of investments to affect the cash value in a positive way. The value of the death benefit can change depending upon the worth of the investments. The amount to invest in funds can be a portion of the actual premium so if there are losses incurred it will not affect the entire balance of the cash value. Variable life insurance allows the policy owner to earn money without being taxed on those earnings until the policy is cashed out. However, there is a possibility of losses as well. "And that which thou sow, thou sow not that body that shall be, but bare grain, it may chance of wheat, or of some other grain" (1 Corinthians 15:37).
Policies may vary depending upon the insurance company and what investments they allow for variable life insurance. Some choices for investing a portion of a premium include equities and bonds both nationally and/or globally. Policyholders should be able to see what is happening with their money on a daily basis when part of the premium is invested. In addition, they should have some say as to what the money is invested in. Many reps will suggest being diversified by investing in a mix of choices. Insurance companies may vary in what they allow or options that they offer on investments. They should offer a variety of investment choices in order for it to be attractive to the maximum amount of people or policyholders.
The death benefit at the time of death is based upon the face amount of the policy plus any cash value that occurs because of investments. Variable life insurance that has returns on investments may more than pay for the premiums on the policy. When the investments are poor the policy can lapse because the investment is not enough to make the premiums. If this happens then the policyholder needs to be informed so premiums can be paid or there will be no death benefit available when needed. A person considering this type of policy should consider making the premiums every month without considering the investments so the policy will not be in danger of lapsing.
The costs of variable life insurance is usually more expensive compared to whole, term and universal but there are some benefits that may make it a better choice. Advantages to consider are tax free earnings and the increase of the cash benefit at the time of death. The policyholder should realize that withdrawals and loans can affect the cash benefit as well. Term insurance is only good for a certain period of time but may be able to be renewed or converted to whole life and does not increase in value or have cash benefit. Whole life policies have guaranteed cash value and the value can be borrowed against but borrowing reduces the death benefit until the money is paid back. Interest is charged to the policyholder when paying back the borrowed amount.
Amounts to invest are up to the policyholder and withdrawals or borrowing from variable life insurance is usually alright to do at any time without penalties. However, there may be surrender charges that actually penalize a policyholder for withdrawing funds before a set or specific time period. This time period could be as much as ten years or more. Some policies have restrictions about investments that if the policyholder dies before the maturity of the policy, the heirs of the insured can only get the amount of the death benefit and are not eligible to get the investments funds as well. A person considering this should find out about this type of contract and find out if there is another way to ensure that his or her heirs benefit from the investments.
The policyholder or owner has the option of choosing the investments through variable life insurance which makes him or her financially responsible if the investments do poorly or if the policy lapses for nonpayment of the premiums. Premiums for variable life are usually much more costly then other life insurance policies but the policyholder can choose the amount of the death benefit. If however, the cash value exceeds a set percentage of the death benefit then legally it is no longer considered life insurance. When this happens the investment earnings become taxable in the same year that this occurs. So, there is a limit to how much money can be made on this type of policy in order for it to accomplish what it is created to accomplish and that is to protect one's heirs in case of death.
Some companies offer a large variety of investment choices to policyholders with variable life insurance. Separate accounts can be set up from the main account in sub accounts to be invested in stocks and bonds, and so on. A person interested in this type of life insurance should seek some advice from a financial counselor or insurance representative that is licensed to sell variable policies. Many people choose a variable policy for the tax advantages. The best advice overall is to get information about any type of fees that could cut profits when choosing this type of policy. There may be investment management fees that are deducted from the cash value. If this happens on poorly producing investments then there could be losses with the policyholder having to make up the differences to cover the premiums.
Policies may vary depending upon the insurance company and what investments they allow for variable life insurance. Some choices for investing a portion of a premium include equities and bonds both nationally and/or globally. Policyholders should be able to see what is happening with their money on a daily basis when part of the premium is invested. In addition, they should have some say as to what the money is invested in. Many reps will suggest being diversified by investing in a mix of choices. Insurance companies may vary in what they allow or options that they offer on investments. They should offer a variety of investment choices in order for it to be attractive to the maximum amount of people or policyholders.
The death benefit at the time of death is based upon the face amount of the policy plus any cash value that occurs because of investments. Variable life insurance that has returns on investments may more than pay for the premiums on the policy. When the investments are poor the policy can lapse because the investment is not enough to make the premiums. If this happens then the policyholder needs to be informed so premiums can be paid or there will be no death benefit available when needed. A person considering this type of policy should consider making the premiums every month without considering the investments so the policy will not be in danger of lapsing.
The costs of variable life insurance is usually more expensive compared to whole, term and universal but there are some benefits that may make it a better choice. Advantages to consider are tax free earnings and the increase of the cash benefit at the time of death. The policyholder should realize that withdrawals and loans can affect the cash benefit as well. Term insurance is only good for a certain period of time but may be able to be renewed or converted to whole life and does not increase in value or have cash benefit. Whole life policies have guaranteed cash value and the value can be borrowed against but borrowing reduces the death benefit until the money is paid back. Interest is charged to the policyholder when paying back the borrowed amount.
Amounts to invest are up to the policyholder and withdrawals or borrowing from variable life insurance is usually alright to do at any time without penalties. However, there may be surrender charges that actually penalize a policyholder for withdrawing funds before a set or specific time period. This time period could be as much as ten years or more. Some policies have restrictions about investments that if the policyholder dies before the maturity of the policy, the heirs of the insured can only get the amount of the death benefit and are not eligible to get the investments funds as well. A person considering this should find out about this type of contract and find out if there is another way to ensure that his or her heirs benefit from the investments.
The policyholder or owner has the option of choosing the investments through variable life insurance which makes him or her financially responsible if the investments do poorly or if the policy lapses for nonpayment of the premiums. Premiums for variable life are usually much more costly then other life insurance policies but the policyholder can choose the amount of the death benefit. If however, the cash value exceeds a set percentage of the death benefit then legally it is no longer considered life insurance. When this happens the investment earnings become taxable in the same year that this occurs. So, there is a limit to how much money can be made on this type of policy in order for it to accomplish what it is created to accomplish and that is to protect one's heirs in case of death.
Some companies offer a large variety of investment choices to policyholders with variable life insurance. Separate accounts can be set up from the main account in sub accounts to be invested in stocks and bonds, and so on. A person interested in this type of life insurance should seek some advice from a financial counselor or insurance representative that is licensed to sell variable policies. Many people choose a variable policy for the tax advantages. The best advice overall is to get information about any type of fees that could cut profits when choosing this type of policy. There may be investment management fees that are deducted from the cash value. If this happens on poorly producing investments then there could be losses with the policyholder having to make up the differences to cover the premiums.
Variable Life Insurance
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Reviewed by Anonymous
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