The Advantages and Drawbacks of Variable Life Insurance

The concept of life insurance has been around for decades and decades. It’s one of the best safety nets that you can buy for your family. It will ensure that they have the protection that they need, regardless of what happens to you.

Over time, life insurance policies have evolved from simply offering pure death benefit protection, to providing many additional savings and investment options. One type of policy that allows the policyholder the ability to take part in the potential growth of the equity market is variable life insurance. There are certain advantages and drawbacks of variable life insurance that you may want to consider before purchasing this type of coverage.

variable life insuranceWe know that find the perfect life insurance policy can be a long and difficult process, but our agents are here to help. We can make the process as quick and simple for you.

This article is going to look at the ins and outs of variable life insurance and solve some of the mysteries surrounding variable life insurance. Unlike some of the other kinds of life insurance, these plans aren’t exactly the easiest to understand.

Definition Of Variable Life Insurance

Variable life is actually a type of permanent life insurance coverage. This type of policy offers one component for permanent death benefit proceeds whereby funds will be available to a beneficiary (or beneficiaries) for paying off final expenses and other financial needs of the insured’s survivors. The other component that is found in variable life insurance is used for investing. For more on definition of variable life insurance, look here.

The Inner Workings Of Variable Life Insurance

Variable life insurance policies are considered to be permanent life insurance plans. This is because these plans offer a guaranteed death benefit component. However, they also allow their owners to invest in a variety of “separate” accounts where a number of different investments may be chosen for inclusion in the policy’s cash component. This article covers detailed information on different components of life insurance.

The investment area of a variable life insurance policy allows the policy owner to take part in a variety of different investment options. This can essentially enable this portion of the policy the potential to grow quite a bit – depending on the performance of the underlying investments that are chosen. Just some of the investment vehicles that a variable life insurance policyholder can choose from include stocks, bonds, mutual funds, and money market funds.

Variable life insurance policies got their name because when premiums are paid into the plan, the portion of the premium that is allocated to the investment portion of the policy will “vary,” as it is subject to the up and down fluctuations of the underlying equity market. Because many of the investments within a variable life insurance policy are equities, these plans are considered to be securities. Therefore, they are regulated by federal securities laws.

It is important to note that investment markets can both rise and fall. With this in mind, it is possible that the value of a variable life insurance policy’s investment component could fall if the underlying investments perform poorly.

The pros and cons of variable life insurance discussed in this article are for information purposes only and should not be taken as an advice or expert opinion.

Why Consider Purchasing A Variable Life Insurance Policy?

Although variable life insurance may not suit everyone, there are certain situations in which this type of life insurance could be a very good fit. Some of the advantages of variable life insurance can include:

  • Fixed Premiums – One big advantage to owning a variable life insurance policy is that the premium amount is usually fixed. Therefore, in most cases, the policyholder will not need to worry about rising premiums in the future.
  • Guaranteed Death Benefit – Even though fluctuations in the market can affect the value of the policy’s investment component, the death benefit amount that goes to the policy’s beneficiaries is guaranteed. This can offer peace of mind in knowing that no matter what happens in the underlying market, funds will be available from this portion of the policy if needed.
  • Tax Deferral – As with other types of permanent life insurance, the funds in the underlying investment account are allowed to grow on a tax deferred basis. This can help these funds to accumulate faster than if they were taxed on an annual basis. For Tax related benefits of owning a life insurance policy, read this article.
  • Investment Variety – Due to the wide variety of investment options that are available, variable life insurance can offer a policyholder much more choice in potential growth options for their invested funds. This differs from other types of permanent insurance such as whole life where the insurance company chooses the underlying investment allocations, as well as the interest rate that is offered to the policyholder.
  • Ability to Borrow – In many cases, the funds that are in the investment component of a variable life insurance policy can be borrowed by the policyholder at little or no interest. In addition, oftentimes the cash value can also be used for paying future policy premiums that are due. This can alleviate the policyholder from having to pay premiums out-of-pocket if they so choose.

Disadvantages of a Variable Life Insurance Policy

Every plan is going to have its pros and cons, variable life is no different. There are several drawbacks to these plans you should be aware of when you’re shopping around for insurance coverage.

One of the biggest problems with these variable plans is the cost. They are nowhere near the most affordable option out there. With all of the additional benefits you get with these plans, you’re going to pay some higher rates. If you want cheap life insurance, this won’t be your best choice.

Another disadvantage of these plans is there is no guaranteed growth. With a whole life insurance policy, you don’t have to worry about the growth of the cash value. With variable life insurance, you have no idea how much you’re going to earn. Sure, this is true with any investment, but if you want some trusted growth without all of the management of a variable life insurance plan, there are some simpler options out there.

What To Consider When Purchasing Variable Life Insurance

Those who own a variable life insurance policy will typically be required to take a more active role in the investment portion of the policy. Therefore, it is a good idea to understand how investing in stocks, mutual funds, and other investment vehicles works prior to moving forward with the policy purchase. Given this, the owner of a variable life insurance policy should generally have a higher risk tolerance, as it is possible that the value of the invested funds could fluctuate up and down regularly.

Due to the flexibility of variable life, however, this type of policy can allow policy holders to obtain a much higher rate of return on invested funds, while at the same time getting the protection of a guaranteed amount of death benefit coverage.

One factor you should consider when you’re thinking about buying a variable life insurance policy is the goal of your protection. If you just want simple life insurance to protect your family and nothing more, than these are the best route. A term insurance policy is going to be the most straightforward kind of life insurance.

Term or Variable Life Insurance

If you decide that variable life insurance policies aren’t the best option for you, there are plenty of other plans that you can choose from. If you’re looking to get the most affordable life insurance policy, then a term life insurance plan is going to be your best option.

Term insurance plans are bought with a pre-determined length of effectiveness. After they’ve reached that point, they are no longer in force, and you’ll have to reapply for life insurance protection. Because these policies come with an expiration date, they are going to be much cheaper than other forms of life insurance.

Getting Cheap Variable Life Insurance

As we mentioned, one of the main complaints against variable life insurance coverage is the price. They are not the cheapest, but they don’t have to strain your bank account.

Regardless of which kind of plan that you choose for your life insurance protection, there are several ways that you can secure lower rates. The first thing that you should do is improve your health. After you complete the initial paperwork for the life insurance plan, the company is going to require that you take a medical exam before they accept your coverage, unless you have chosen to purchase a no medical exam required policy, which will result in higher premium rates. The results from the medical exam are going to play a huge role in how much you pay for your coverage.

If you want to get lower rates for your policy, you’ll need to improve your health. There are several ways that you can do this. The first thing that you should do is start a healthy diet. Switching out the junk food for healthier options is going to help you shed those extra pounds, lower your cholesterol, and lower your blood pressure. All of these are going to translate into lower insurance rates.

The next thing that you should do is start an exercise program. Getting regular exercise can work wonders on your health. You don’t have to be a marathon runner to get affordable rates on your life insurance plan. Just like with a diet, exercise can bring a whole host of health benefits, which are going to secure lower insurance premiums.

Every life insurance company has a different algorithm for how they calculate rates. Some companies emphasize certain areas more than others. If you were to get quotes for the exact same plan from three different companies, those rates would be all across the spectrum. It’s easy to see why you should get several quotes before you pick a plan.

The best way to get the best rates on your life insurance policy is to work with an independent insurance agent, like ours. Unlike a traditional insurance agent, independent insurance agent, we represent dozens of insurance companies across the nation.

Not only can we connect you with the best rates for your insurance needs, but we can also answer any questions you have and help you decide which one is going to be best for your loved ones. We have years of experience and we can ask you a couple of questions which can determine the kind of coverage you will need.

Life Insurance, Why it Matters

You want to protect your family, and life insurance is the perfect way to do that. Life insurance can help your family in case of a tragedy. If you’re the mainstream of income, your family would be sunk without your monthly paycheck.

If you have any questions about variable life insurance policies or about the other kinds of insurance that you can buy, please contact one of our agents today. It’s our mission to ensure that you get the perfect plan to fit your needs at an affordable rate. We can help you compare dozens of policies all at an affordable rate.

You never know what’s going to happen tomorrow, which means that you shouldn’t wait any longer to get the insurance protection that your family deserves. Not having life insurance is one of the worst mistakes that you could ever make for your loved ones. If you were to pass away, your family would be responsible for all of those bills, which can leave them with a mountain of debt. Give your family the protection that they need, and the peace of mind that you deserve.


Susan Wright holds a BA from Michigan State University and an MBA from St. Louis University. Having over 20 years of working experience in the insurance and financial services industry, she has trained more than 10,000 financial services representatives. Susan has had licenses in real estate, insurance, and NASD Securities, and she has earned nine industry professional designations, including CLU, ChFC, RHU, REBC, CSA, CLTC, CCFC, CSS, and ADPA. Read more about her on Google+


Susan Wright holds a BA from Michigan State University and an MBA from St. Louis University. Having over 20 years of working experience in the insurance and financial services industry, she has trained more than 10,000 financial services representatives. Susan has had licenses in real estate, insurance, and NASD Securities, and she has earned nine industry professional designations, including CLU, ChFC, RHU, REBC, CSA, CLTC, CCFC, CSS, and ADPA. Read more about her on Google+

This entry was posted in Life Insurance. Bookmark the permalink.