Variable life insurance is a very important category of policies in the insurance market. The biggest advantage for the policy holder is that variable life insurance plans gives the possibility to achieve gains in the cash value. Such gains are tax free to the beneficiary and depending on the case, may be very interesting.
Variable life insurance plans offer permanent protection to the beneficiary of the plan in the event of death of the policy holder. As this type of plan allows you to allocate a percentage of your premium cash on a total separate account, this is one of the most expensive types of plan available in the market.
To provide a minimum guaranteed death benefit for a variable life insurance plan, insurance agents are based on “assumed rate of interest”, which is defined as the amount it’s believed an investor could earn in the investment. You may choose a specific investment, such as a money market fund, stocks (this one is particularly popular), bonds or fixed income investments. Both the investment and the cash value may vary, depending of the results of your investment funds. In variable life insurance plans as well as whole life insurance, you pay fixed premiums on a scheduled basis.
Another important aspect of variable life insurance plans is that they allow policy owners to use the investment fund for loans. However, due to the volatility of the separate account, the amount used for loan is limited, usually to only 70% or 80% of the cash value.
Variable life insurance plans are also considered as a security, since you are the one who decides where your money would be invested and you take all the risks. That is, the investment risk is switched from the insurance company to the policy owner. As they are considered as security contracts, variable life insurance policies may only be sold with a prospectus (a document presenting important facts about both the policy and the insurance company).