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.
Thank you for your question! Variable life insurance is a form of permanent life insurance that builds cash value inside mutual fund like sub-accounts. Variable means that the cash value balances can fluctuate based upon the performance of those underlying sub accounts. Since the policy holder chooses the investments for the cash values, they assume the investment risk inherent to the contract. Which means that if they don’t perform as expected or enough premium is invested over time, then the policy could be subject to lapse. Whereas with other forms of "non-variable" permanent life insurance the insurance company retains the investment risk of the underlying cash values. However, changes in premiums paid and interest rates credited to the cash values of these policies can affect the longevity of the policy too. You’ll find links below to a couple articles that will explain more about variable and other forms of life insurance. In addition, I'm sharing a link to a calculator to help you discern an appropriate amount of life insurance for your personal situation. You might have to copy and paste the links to your internet browser.
Variable Life Insurance Article - http://www.davidblountiips.com/Variable-Life-Insurance.c44.htm
What Are the Basic Types of Life Insurance Article - http://www.davidblountiips.com/Types-of-Life-Insurance.c1073.htm?
How Much Life Insurance Do You Need Calculator - http://www.davidblountiips.com/learning_center/calculators/life_insurance
Best wishes and hope these resources were helpful!