Variable life insurance features both a death
benefit and a true investment account feature. It is designed to
shift the risk of investment gains and losses to the policyholder.
The insurance company invests your premiums in
the funds that you choose. The amount of money your beneficiaries
receive and the cash value of your policy depend on how well your
investment does. There are no guarantees with variable life, if your
investments go down to zero, your policy is terminated.
Variable life comes in both universal and whole
life versions.
If your investments perform well, you will have
a higher cash value and death benefit. If the investments lose
money, you'll have a lower cash value and death benefit. It is
possible to find some policies that will guarantee the minimum death
benefit.
You are allowed to take loans out against the
cash value of your policy, but if you don't pay them back, your
beneficiaries will receive a lower death benefit. You can surrender
your policy for cash or convert it into an annuity, but this is an
expensive option for saving.
Variable life insurance is a high risk product.
It is sold with an accompanying prospectus. The prospectus provides
you with expense information and investment options. Make sure that
the expenses are not prohibiting and the investment options are
within your risk tolerance.
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