Variable Life insurance is an innovative insurance product that combines insurance protection with investment opportunity. That means there is the potential for growth in your policy's cash value and possibly in the death benefit, too. Basic Variable Life is a type of Whole Life insurance, in the sense that it provides permanent protection and requires scheduled premium payments. The more popular version, today, however, is Variable Universal Life (VUL*), which we focus on here.

Premium Flexibility

As with Universal Life, you decide how much and how often to pay premiums, within certain limits.

Death Benefit Flexibility

As with UL, you can increase or decrease the death benefit — and the resulting cost to you. But, remember, an increase may require some evidence of insurability and a decrease may incur a surrender charge. You can choose between two death benefit options: a level (fixed) amount, and a variable amount — equal to the policy cash value at the time of death, plus the initial face amount stipulated in your contract.

Investment Options and Flexibility

Unlike UL, VUL lets you allocate policy cash values to various investment options within your policy. The number of investment portfolio options varies by insurer, but nearly all VUL policies offer stock portfolios (both domestic and international), along with the more conservative bond portfolios, a money market portfolio, and, the most conservative of all, a guaranteed interest option.

No Minimum Guaranteed Cash Value

As with all investment options, except the guaranteed interest option, there is always the possibility of negative performance. Consequently, VUL doesn't provide you a minimum guaranteed cash value. On the other hand, it does provide greater opportunity for growth in cash value and death benefit than any other type of life insurance.

If you want to ensure that your beneficiaries receive at least some benefit, regardless of investment performance, VUL can be an excellent protection product for you. As long as you continue to pay a specified amount of premium into the policy and don't make any withdrawals beyond a specified limit, VUL can provide a guaranteed minimum death benefit. This feature is available in most states.

Managing Investment Risk

The opportunity to select investment portfolios (e.g., stock, bond, money market, etc.) within your VUL policy brings with it a greater degree of risk than other types of policies. However, several factors are at work to manage that risk.

First, you have the assistance of professional money managers. They direct what and when to buy and sell for each investment vehicle within the policy. They choose the individual investment components. As a result, you need concern yourself only with the overall performance of the asset classes in which you decide to invest. Diversification of your investment across the range of investment choices usually available, along with the stability of a guaranteed interest account, helps to manage risk.

Second, you can follow a dollar-cost-averaging strategy. By paying the same amount of premium on a regular basis, you buy more portfolio shares when prices are low and fewer when prices are high. In that way, market fluctuations work in your favor to bring down your average cost per share. 

Third, you can let time work to your advantage. Investing in common stocks by holding them over longer time periods may smooth out price fluctuations.

Lastly, to eliminate the risk of your policy lapsing because of poor investment performance, you can elect (where available) the guaranteed minimum death benefit feature discussed earlier. Or, you can discipline yourself to pay enough premium to cover any policy charges that might otherwise cause your policy to lapse.

Please contact us at life@buyhealthplan.com to learn more and acquire Variable Life Insurance.