Variable Life Insurance- A Dying Breed?

Life Insurance

Variable life insurance offers a combination of permanent life insurance protection and the growth potential of variable fund investments. Its unique feature is that the policy's cash value is invested in separate account funds of equities, money markets, or bonds. The policy owner decides which separate account to invest the premium, and periodically, within limits set in the contract, may transfer funds from one fund to another. Although the policy owner chooses among the offered funds, he or she has no control over the assets purchased and sold by each individual fund.

The policy guarantees a minimum death benefit, but the actual death benefit paid may be substantially higher if the investments perform well. The investment risk of the policy is shifted from the company to the policy owners. The cash values are not guaranteed and fluctuate daily with investment performance. If the investments to which they are linked perform poorly, the variable life insurance cash values may grow at a lower rate than in traditional products or not at all. This is the primary factor leading to the decline of this product in the past few decades, as interest rates have dropped substantially from the time they were popular in the 70’s and 80’s.

The variable life policy guarantees the death benefit equal to the original face amount of the contract, regardless of how badly the investment performance is, if all required premiums are paid on time. Variable life insurance policy owners will pay a level premium for the duration of their policy. There are no flexible premium payments with this product as there are with universal life insurance. Variable life offers traditional product provisions such as loan privileges and the usual variety of other optional riders.

Variable life is both a life insurance and equity product, therefore, advisors who sell it must be licensed in the state where the product is sold and also registered with the Financial Industry Regulatory Authority (FINRA). This product is regulated by both state law and by the Securities and Exchange Commission (SEC). The company selling variable life must provide a prospectus, which the advisor must give to prospects before or during the initial sales interview. The prospectus provides thorough and accurate information to the prospective purchaser concerning the company issuing the life insurance contract in addition to a full disclosure of all material facts concerning the contract.

With the introduction of variable universal life insurance, with its added premium flexibility and often higher initial death benefit for the same initial premium, variable life now represents less than one percent of all life insurance sales. Is variable life insurance something that might work for you and your present situation? 

About the author: Kyle McDonald holds FIC, FICF, FSCP® & CLTC designations. His viewpoint on life insurance is simple, “Anyone with a family must have life insurance. In the end, life insurance is for others you care about, not you.” He is ready to help you and your family get the best option available. Contact Kyle today at   1-800-651-1953 or KMcDonald@Pivot.com.