What is variable life insurance? A complete guide.

Variable life insurance

Variable life coverage is a type of permanent life insurance. It includes a cash value, investment variety, fixed premiums, and death benefits.

Variable life insurance offers protection for the lifespan of an insured individual so long as premiums are paid.

In this guide to variable life insurance, we will examine what it is, when you might need it, and compare it with variable universal life insurance.

Table of contents

• What is variable life insurance?
• How does variable life insurance work?
• Who needs variable life insurance?
• Types of variable life insurance
• Benefits of variable life insurance
• Drawbacks of variable life insurance
• How to choose variable life insurance
• Variable life insurance cost

What is variable life insurance?

As mentioned, variable life insurance is a permanent policy with a fixed death benefit amount.

In contrast, variable universal life insurance (VUL) has adjustable premium payments and a flexible death benefit. We will cover VUL later in this guide.

Variable life insurance coverage is unique compared to other life insurance types. It provides policyholders with various life insurance investment options.

Variable life insurance is a long-term investment. Unlike other permanent policies, variable life insurance requires you to actively participate in your investment needs.

How does variable life insurance work?

Like most standard life insurance types, a variable life insurance policy includes a death benefit paid to your chosen beneficiaries after death.

In most cases, a variable life policy’s death benefit exceeds the premiums paid.

Additionally, variable life insurance includes a cash value element. As standard, you pay your premium, the insurance costs and other fees are deducted, and the remainder goes toward your cash value.

The cash value amount changes based on the following factors.

• The insurer’s charges and amount of paid premiums
• Performance of the investments that are tied to the policy
• If the policyholder makes any withdrawals or takes out any loans

Unlike other policies, variable life insurance lets you decide how to invest the money.

All variable policies allow you to choose how your cash value is allocated with few limitations.

Your insurers can provide you with all the options. You can then choose your options based on your investment strategy.

Policyholders often take out loans based on a variable policy’s cash value to provide extra retirement income. You usually aren’t required to pay taxes on the borrowed money.

One variable cash value investment account can contain dozens of sub-accounts. You increase your cash value if these subaccounts do well. If they don’t, your cash value will decrease. In addition, the death benefit will increase if the cash value exceeds a certain amount.

Some premiums can also be put into a non-investment or fixed account that pays interest on the deposited money.

You must maintain a sufficient cash value to take advantage of this benefit. If you reach zero cash value, your policy may be void.

Who needs variable life insurance?

Variable life policies are suited to people who have the advantage of exploring their options.

Variable life insurance is a good option if you are in the position to take a risk and absorb investment losses if the accounts underperform.

Prospective policyholders should consider whether they can afford variable life insurance, as the fees and associated expenses may be costly.

Investing involves different risks that can reduce your policy’s cash value, so comparing variable life insurance against your options is essential.

Types of variable life insurance

Both variable life insurance (VL) and variable universal life insurance (VUL) rely on your preferred investment options, like bonds, stocks, and mutual subaccounts.

Both options involve more risk than other permanent insurance options, such as whole or universal life insurance.

On the flip side, there is more potential for growth when compared with other long-term insurance options.

These options are for investors comfortable investing in riskier life insurance products. Most buyers opt for safer alternatives like term life, whole life, or even universal life.

Some of the similarities between VL and VUL include the following:

• Return rates without limits
• You control what your cash value is invested in
• Your investment subaccounts value might decrease

VL and VUL are both “variable” as their cash value will fluctuate based on the market and performance of an underlying portfolio of investments, but they’re not the same.

The main difference between both insurance options is the flexibility of the premiums and the death benefit.

Variable life insurance

• Variable life shares similarities to whole life insurance
• Fixed premium payments - does not let you raise or lower your premium amounts
• More death benefit guarantees - the death benefit will not fall below a specified amount (regardless of investment performance)

Variable life insurance appeals to investors who like the terms offered in whole life insurance policies, such as the regularity of premium payments.

VL is an older option and isn’t as popular as variable universal life, but attractive options exist.

Variable universal life insurance

• Variable universal life shares similarities with universal life insurance
• Adjustable premium payments - lets you increase or decrease premium amounts within a specified figure
• Flexible death benefit - you can increase or decrease the death benefit if initially agreed upon (regardless of the cash value investment performance)
• The death benefit isn’t guaranteed unless you pay a fee

One of the benefits of VUL is also its drawback, as you have few guarantees.

You can easily end up with expensive premiums or lose your coverage entirely if you make poor choices.

However, of the two variable options, universal life is more popular.

Benefits of variable life insurance

As mentioned, variable life and VUL give you more control over your investments and the potential for high returns than most life insurance.

For people who want financial protection and investment in one, variable options solve two problems simultaneously.

In summary, the benefits of variable life include the following:

• Loan options against the cash value
• The ability to build greater cash value
• Wide range of fixed-rate subaccounts
• Provides control and the most flexibility
• You can diversify your investment strategy
• Flexible premiums and death benefits can be increased or decreased

Drawbacks of variable life insurance

As mentioned, variable life and VUL combine investments and an insurance policy.

Insurance companies must be registered to sell variable policies, meaning they carry greater risks than most.

In summary, the drawbacks of variable life include the following:

• Insurance fees and other expenses can reduce the cash value
• Loans or low investment performance can potentially lead to a reduced death benefit
• Your policy can be terminated if you don’t maintain sufficient cash value
• Associated risks of variable life insurance may result in higher premiums

How to choose variable life insurance

Here are some tips for choosing variable life insurance.

• As it’s a permanent contract, choose an insurer with a long history of serving clients
• Look for low investment fees and policy benefits
• Obtain quotes from several insurance companies when choosing your insurer
• Seek policies from insurance companies with a solid reputation

Bottom line

Variable life is a type of permanent life insurance that includes a cash value, investment variety, fixed premiums, and fixed death benefits.

As long as paid premiums are up to date, variable life insurance offers protection for the lifespan of an insured individual.

Conversely, variable universal life insurance (VUL) has adjustable premium payments and a flexible death benefit.

Variable life insurance coverage is unique compared with other life insurance types. It offers you various life insurance investment options.

Like standard life insurance, a variable life insurance policy includes a death benefit for your chosen beneficiaries.

Variable life insurance includes cash value. Unlike other policies, variable life insurance lets you decide how to invest the money.

All variable policies allow you to choose how your cash value is allocated with few limitations.

You must maintain a sufficient cash value to take advantage of this benefit. If you reach zero cash value, your policy may be void.

Variable life insurance cost

The cost of variable life insurance depends on the following factors:

• Age
• Gender
• Occupation
• Medical history
• Smoking status
• Insurance type
• Coverage options
• Limits and deductibles

When considering any type of variable life insurance, ensure you understand the policy terms before purchasing.

Variable life insurance quote

Failure to have adequate life insurance can cause financial suffering to those left behind.

Pitsas Insurances provide competitive life insurance packages for those wanting to protect their family or loved ones in the event of death.

It’s important to review your goals and needs with your insurance provider, as they will help you find the right policy.

Pitsas Insurances offer life insurance at highly competitive rates.

We offer you the following:

• Tax benefits and deductions
• Immediate mortgage payment cover
• Coverage of expenses for your children’s education
• Considerable financial income for your family members
• Options to connect a policy with your medical insurance to save up to 25%

To learn more about our variable life insurance, see here.

To receive a hassle-free quote for variable life insurance, see here.

Pitsas Insurances Team

Limassol, Cyprus