What is variable life insurance?

Life Insurance
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September 2016
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Variable life insurance is a permanent form of insurance that builds up cash value but allows you to invest the "extra" in sub-accounts that are managed by many professional management firms. The process of buying a variable policy is to allow your agent or registered representative to run an illustration showing the premiums required to purchase x amount of insurance that will buildup x amount of cash based on the sub-account illustrated performance. It sounds complicated, but it really is not. The key is running a policy that will sustain itself to age 95 to 100 with an interest rate of the sub-accounts that is reasonable, usually 7-8%. The sub-account is the insurance industry equivalent to mutual funds so do not get that confused. The market might average 9-10% for the last 100 years, but it is best to run your sub-account assumed performance a little lower than that for a little more security.

A good, experienced registered representative should take into account if a variable policy makes sense for your insurance/investment portfolio as many times these types of polices can be abused. Consumers can pay into it for a certain period of time and then change their minds mid-stream causing them significant out of pocket expense and then a possible surrender charge on the cash that they did build up. If the consumer does not make the long term commitment to the plan, they likely will lose quite a bit not to mention the time lost. If kept, the policy can be a great tool for insurance protection and cash value options down the road. However, this plan takes many years to complete and insurance needs change over time.

Jason R. Tate, ChFC, CLU, CASL

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