Understand Variable Life Insurance Advantages And Disadvantages
Do you understand variable life? It may be easier to understand if we can contrast it to whole life insurance.
It is a permanent policy, and it can grow a cash value. But it is also different than traditional whole life.
A whole life policy does have a cash value that can grow over time. It usually grows by a pre-set interest rate or some market index. Beyond that, the policy has little control over how the cash portion of their policy is invested.
Variable life is different. The cash portion can be invested in one or more financial funds. These may be equity, mutual, or money market funds. The policy owner can allocate these cash funds in any way they want. They can also change how it is allocated. This gives the owner more ocntrol and flexibility over the way the money is managed.
Growth in the cash account can also increase the death benefit. This may mean that the policy owner does not have to make premium payments, or that he or she can make lower premium payments. So this may be an advantage.
Of course, the funds could also decline. This means that the cash account could lose value. It also means the death benefit could go down and premiums could get more expensive.
A policy may have a minimum value and/or death benefit. This can lower the owner's risk.
Of course, there are also tax advantages to most life insurance policies. Variable life is no exception. The death benefit is usually not taxed. Gains are also exempt from taxes until the policy is sold or cashed in.
Why do some people purcahse variable life insurance?
It should be obvious that the main thing people purchase a life insurance policy for is because they want to provide a death benefit. These beneficiries could be family memebers, a business, or a favorite charity.
As i have discussed above, variable life also gives the owner more control over the money accounts. If the policy owner wants to manage their cash account, this is one option for them. Different types of funds may do better at different times. The owners has a lot of choices and flexibility.
The cash value can also be used as an asset. As with other permanent policies, it could be sold in a life settlement or cashed in to the insurance company. The cash account may also be borrowed against if the owner needs cash.
How much does variable life cost? As with any form of life insurance, the price will vary by your health, age, the face value, where you live, and the insurer. You should always compare premiums and policies before you make a purchase!
Is variable life a good option? Your own invidiual situation will be different from the next person. It is impossible to say if any type of policy is perfect for every person who wants to be covered.
It would be a good idea to find a qualified variable life broker so you can understand the pros and cons before you make a final decision.
by: Marilyn Katz
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