Variable Life Insurance Policy

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DEFINITION of 'Variable Life Insurance Policy'

A form of permanent life insurance, Variable life insurance provides permanent protection to the beneficiary upon the death of the policy holder. This type of insurance is generally the most expensive type of cash-value insurance because it allows you to allocate a portion of your premium dollars to a separate account comprised of various instruments and investment funds within the insurance company's portfolio such stocks, bonds, equity funds, money market funds and bond funds. In addition, because of investment risks, variable policies are considered securities contracts and are regulated under the federal securities laws; therefore, they must be sold with a prospectus.

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BREAKING DOWN 'Variable Life Insurance Policy'

The major advantage to variable policies is that they allow you to participate in various types of investment options while not being taxed on your earnings (until you surrender the policy). You can also apply the interest earned on these investments toward the premiums, potentially lowering the amount you pay. However, due to investment risks, when the invested funds perform poorly, less money is available to pay the premiums, meaning that you may have to pay more than you can afford to keep the policy in force. Poor fund performance also means that the cash and/or death benefit may decline, though never below a defined level. Also, you cannot withdraw from the cash value during your lifetime.

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RELATED FAQS
  1. Which emerging markets are seeing the strongest growth in the insurance sector?

    The emerging market economies seeing the strongest growth for the insurance sector are primarily the main emerging market ... Read Full Answer >>
  2. What other sectors are most similar to financial services?

    Typically, the financial services sector allows countries to export goods and turn agricultural and manufacturing products ... Read Full Answer >>
  3. What is indexed universal life insurance?

    Indexed univeral life insurance is a lot like universal life insurance, however it does have a couple of wrinkles not found ... Read Full Answer >>
  4. What is the difference between term and universal life insurance?

    Term life insurance is the most basic of insurance policies. It is nothing more than an insurance policy that provides protection ... Read Full Answer >>
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    Variable life insurance is a permanent life insurance policy with an investment component. The policy has a cash value account, ... Read Full Answer >>
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