What is variable life insurance? This is a regular life insurance question that many people wonder about. Variable life insurance gives policy owners a chance to earn larger returns on their cash account than fixed life insurance does, but they also have to assume more risks. That is why professionals who market variable products have to be licensed insurance agents and registered with the National Association of Securities Dealers, or NASD.
Variable Life Insurance Policy Definition
Variable life is a form of permanent insurance like whole life, so buying variable life is not a way to get cheap life insurance.
It differs from whole life in these respects:
The separate account can be comprised of a combination of investments, like stocks, bonds, and equity funds, with the insurer’s investment portfolio. With whole life, premiums get deposited into a company’s general account, and the company assumes the risk for paying out a guaranteed death benefit.
Guaranteed Minimum Death Benefit
Insurers do guarantee a minimum death benefit, but it is based upon an assumed interest rate because there is no way to predict the performance in investments in the fund. If the account performs better than this assumed rate, the death benefit can increase. In another year when the fund does worse than the assumed rate, the death benefit could decrease. But the insurer guarantees that it will never decline below the minimum guaranteed interest rate promised when the policy was issued.
Regulated as a Security
Any variable life insurance policy definition has to include the fact that variable life insurance is more risky than fixed life insurance because the policy owner manages the investments in the account and not the insurance company. That is why variable life insurance cannot be sold by an ordinary insurance agent. The company representative who provides consumers with a prospectus and life insurance quotes must be a registered securities broker.
Because policy owners can participate in the market, they have the opportunity to enjoy tax free growth of their investment account and death benefit. If you have any other questions on a variable life insurance policy, feel free to contact one of agents.