Variable life insurance is life insurance with a death benefit and allows the policyholder to invest and alter the insurance coverage. The premium is used to purchase units that are dependent on the selling price of each unit. The purchase of units can only be made from the variable life fund itself. The creation of new units and the investment will add value to the fund. The investment component is made known to the policyholder at the beginning of the policy. Also has invested in a separately identifiable fund.
Under a regular premium, premium top-ups and holidays are usually allowed but subject to the life company’s administrative rules. After the payment of a year’s premium, withdrawals are also usually allowed. Life protection is the main objective of the plan, with investment as a nominal purpose.
The features of variable life insurance are those policies that can be used for investment as a source of regular savings and protection. The values of withdrawal and the benefits of protection are determined by the acquisition of the underlying assets. But the investment returns under this policy are not guaranteed. Investments are linked to the investment fund managed by the life company and the rise and fall of the market process, which fluctuates. Thus, there is no guaranteed minimum sum assured for the declaration of dividends.
The flexibility of variable life policy:
- The policyholder’s partial withdrawals may be requested, and the amount is met by cashing the units at the bid price.
- This policy also has the flexibility of switching from one fund to another as long as it satisfies the company’s switching criteria. Switching allows a policyholder the liberty to move part or all money from one fund to another. This is useful for retirement and education fee planning.
- For the regular premium policy, the policyholder has the flexibility of increasing or decreasing their premiums.
- Premium holidays and single premium top-ups can quickly get held off by the policyholder.
- It has a simple product design with a clear structure that caters separately to investment and insurance protection.
Variable life insurance has greater exposure to equity investment. Variable life funds can be invested in financial instruments, including cash funds, bond funds, property funds, specialized funds, and diversified funds. Over the long term, the policy owner who invests with high equity investment has a greater risk but may have the potential for higher returns. This is usually the risk in investing in variable funds.
