What to Expect When Purchasing a Variable Life Insurance Policy

Variable Life Insurance 101

A variable life insurance policy combines life protection with investment opportunities. Unlike traditional whole life, the death benefit and cash value can grow or shrink with market performance.

Premium Flexibility and Payment Options

Clients can adjust the amount and frequency of premiums within limits set by the insurer. However, a minimum premium must be maintained to keep the policy active.

Investment Choices and Market Risk

Policyholders select from a range of sub‑accounts—often stocks, bonds, or balanced funds—managed by the insurer or a third‑party custodian. Returns are directly tied to these investments, so gains are possible but losses are also real.

Death Benefit Variability

The death benefit can be a fixed amount, a level amount, or a variable amount that tracks the policy's cash value. If the investment portfolio performs poorly, the benefit may decrease unless the policy is re‑funded.

Fees and Charges

Variable life policies carry multiple fees: mortality and expense, administrative, and investment management. These are deducted from the policy's cash value, impacting growth.

Policy Loans and Withdrawals

Policyholders may borrow against the cash value. Loans accrue interest and reduce both cash value and death benefit until repaid.

Insurance Company's Role and Oversight

The insurer guarantees the policy's death benefit, but the investment performance is the client's responsibility. Regular statements help monitor growth and fees.

When to Consider a Variable Life Policy

Suitable for clients with a long‑term horizon, comfortable with market volatility, and looking for potential tax‑advantaged growth.

Key Takeaway

Expect flexibility in premiums, potential growth tied to markets, fees that erode value, and the need to monitor investments closely.

Fact Table: Common Features and Figures