Variable life Insurance

Variable life insurance is a permanent policy that lasts till the death of the policyholder. It offers a fixed death benefit payout and a cash value component. It is the same as any other permanent life insurance policy; such as the whole life or universal life.

Whole life, universal life and variable life offer cash value, death benefit payout and costly premiums till death. The difference between variable life and all other forms of life insurance policies is the proactive nature of the policyholder.

1. What is variable life insurance?
2. How does variable life insurance work?
3. What are the factors that affect the cash value component of a variable life insurance?
4. Your monthly premium goes which 4 ways for variable life insurance?
5. Which death benefit option should you choose?
6. What is the difference between VUL and variable life insurance?
7. Steps to buy best VUL options
8. Pros and cons of VUL insurance
9. Top companies for buying VUL would be?

What is variable life insurance?

Variable life offers the policyholder to actively participate in the accelerated growth and build up process of his cash value component. In all other life insurance policies, the cash which gets collected in the cash value component is fixed and has a market based interest rate of 3%, applicable on it.

Also Read: Variable universal life insurance: how it works and why you are interested in taking it

Whereas, a variable life offers the policyholder to insure and invest simultaneously. The policyholder is insuring the dependents and he is making all his investment decisions on the cash value account, himself. It is a riskier life insurance policy. By the book, it is defined as the life insurance policy whose cash value component is invested in stocks, mutual bonds, and shares with his consent.

The ultimate objective is to achieve earlier and substantial growth on the cash value account. It can go according to the will of the policyholder if the market goes in his favor. But he can incur huge losses as well, leaving his policy to lapse and he might lose principal too.

Here we will guide you how to go about it smartly, minimizing the losses prospects and buying a safer variable life insurance from the reputable US companies.

How does variable life insurance work?

Simple and straightforward life insurance policy which offers three parts to its buyer.

1. A death benefit payout. (fixed, variable, fixed plus premiums refund, fixed plus cash value)
2. A cash value component. (invested in mutual funds and stocks by the policyholder)
3. Fixed or variable monthly premiums.

Once you buy a $100,000 coverage variable life insurance, you have agreed to paying the monthly premiums which are costly. You have agreed to pay the premiums till your death. The money in death benefit and cash value is tax deferred.

You can borrow the insurance loan against the cash value if you have encountered an emergency once in life. If after borrowing the loan, however, your cash value starts delving lower than the minimum amount required. You’re somewhat in trouble, your policy can lapse, and you have to pay extra and flexible, huge premiums to keep up this variable insurance policy.

Nevertheless, it is not for the ordinary rich people or the weak of heart. This variable insurance policy is only suitable for the elite class who can afford to lose everything invested in this policy. But it does not affect their overall financial stability. 

What are the factors that affect the cash value component of a variable life insurance?

Four factors affect the cash value component of any variable life insurance. These are:

1. Monthly premium amount you pay.
2. Fee to cover the insurance agency costs.
3. Any loan you borrow from cash value.
4. Performance of your chosen investments. 

Your monthly premium goes which 4 ways for variable life insurance?

1. Actual cost of the variable life insurance policy.
2. Agency costs and fees.
3. Cash Value component
4. Investment fees for the amount from the cash value account. 

Which death benefit option should you choose?

You have four options:

1. Fixed Death Benefit Payout

You can sign up for the fixed death benefit payout of the variable life, it is advisable! This is a safety net as your premiums over decades have at least some safe side. Even if you keep incurring losses on your cash value, you shall be able to keep the death benefit safe. 

2. Flexible Death Benefit Payout

Here the policyholder chooses to base his death benefit payout on how well his cash value investments are doing. Where it can result in wonders, it could go otherwise in a catastrophe, too. Choose wisely!

3. Death benefit plus Premium Refund

If the policyholder is smart enough, he would always opt for a fixed death benefit payout. Insurance is linked to safety while investment is linked to risk taking. To keep at least one component risk-free, go for a fixed payout plus the refund of all premiums, if you have to let your policy lapse!

4. Death Benefit plus Cash Value accumulated

This option entitles you to choose the fixed death benefit payout with the accumulated money from the cash value component. If there is any after investing over the years.

What is the difference between VUL and variable life insurance?

VUL aka Variable Universal Life is a part and parcel of Variable Life. It is a type of variable life that is pretty much the same except for its similarities with the universal life policy. 

Steps to buy the best VUL options

1. Research well and thoroughly.
2. Get quotes from many insurance agencies through an independent agent.
3. VUL and variable life are not available online.
4. Always go for reputed companies with A.M. Best Higher Ratings.
5. Take risks but with a financially strong agency.
6. Look for the best companies since you’re signing a contract for the long haul.
7. Read the fine print of the VUL or variable life policy with intense concentration.
8. Take your time to accept the clauses.
9. If and whenever you feel vulnerable, go for the 10 days free look period and get rid of it.

Pros and cons of VUL insurance

• The benefits are awesome if you get to avail the rewards of profitable market shifts.
• You can build a high value cash account in early years.
• You can borrow cash from it as a loan and use it for anything such as a retirement supplement income to a lavish cruise.
• You can use the money to make more stable assets.
• Disadvantages could be grave too.
• VUL or variable life could lapse after a long time, resulting in huge financial loss.
• You can lose all death benefit payout and cash value if you opted for flexible ones and insured losses.

Top companies for buying VUL would be?

The top-notch company based on historical records, client satisfaction, and financial sturdiness, is Pacific Life. Apart from this, you can go for Protective, Lincoln Heritage, Northwestern Mutual and many others.