What is variable life insurance?

By Barry Higgins AAA
A:

Variable life insurance is a permanent life insurance policy with an investment component. The policy has a cash value account, which is invested in a number of sub-accounts available in the policy. A sub-account acts similar to a mutual fund, except it's only available within a variable life insurance policy. A typical variable life policy will have several sub-accounts to choose from, with some offering upwards of 50 different options.

The cash value account has the potential to grow as the underlying investments in the policy's sub-accounts grow - at the same time, as the underlying investments drop, so may the cash value.

The appeal to variable life insurance lies in the investment element available in the policy and the favorable tax treatment of the policy's cash value growth. Annual growth of the cash value account is not taxable as ordinary income. Furthermore, these values can be accessed in later years and, when done properly through loans using the account as collateral, instead of direct withdrawals, they may be received free of any income taxation.

Similar to mutual funds and other types of investments, a variable life insurance policy must be presented with a prospectus detailing all policy charges, fees and sub-account expenses.

To learn more, be sure to read our related article, Variable Vs. Variable Universal Life Insurance.

This question was answered by Barry Higgins.

RELATED FAQS

  1. What are the most common momentum oscillators used in options trading?

    Read about some of the most common technical momentum oscillators that options traders use, and learn why momentum is a critical ...
  2. Who are the best-rated life insurance companies in the US?

    Learn about what makes an insurance company the best. Read about the best life insurance companies in the U.S. in 2014, following ...
  3. What are some examples of when insurance bundling is a bad idea?

    Learn about situations where insurance bundling may not be a favorable option. Bundling insurance is often a good idea, but ...
  4. How are Bollinger Bands® used in options trading?

    Use Bollinger Bands to identify volatility changes and place options trades at the right time; profit in bull or bear markets ...
RELATED TERMS
  1. Medical Identity Theft

    Stealing another person’s health insurance information so that ...
  2. Noncancellable Insurance Policy

    A life or disability insurance policy that an insurance company ...
  3. Member Month

    The number of individuals participating in an insurance plan ...
  4. Pre-Existing Condition Exclusion Period

    A health insurance benefit provision that places limits on benefits ...
  5. Policy Or Sales Illustration

    An educational tool that shows a prospective or new insurance ...
  6. Point-of-Service Plan (POS)

    A type of managed-care health insurance plan that provides different ...

You May Also Like

Related Articles
  1. Thanks to the Affordable Care Act, you can no longer be denied health insurance for having a pre-existing or chronic medical condition.
    Insurance

    Choosing A Health Plan For Your Chronic ...

  2. Four key factors to check out before you just sign up for dental insurance. The coverage could be really worth it – or not.
    Insurance

    Does That Dental Insurance Have Cavities?

  3. Compared to other options, does it ever make sense to include cash-value life insurance in your investment portfolio?
    Trading Strategies

    How Good An Investment Is Life Insurance?

  4. Insurance

    Tips for Finding Affordable Health Insurance

  5. Insurance

    4 Steps to Finding the Right Health ...

Trading Center