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.
Understanding Variable Life Insurance: A Comprehensive Guide
Variable Life Insurance is a unique type of life insurance that combines traditional coverage with an investment opportunity. This flexibility allows policyholders to potentially increase the value of their life insurance through various investment options. In this article, we will explore the ins and outs of Variable Life Insurance, detailing its features, benefits, and considerations to help you determine if it is the right choice for your financial planning needs.
Key Features of Variable Life Insurance
Variable Life Insurance stands out from other insurance products due to its investment component, which is linked to various investment funds. Below, we’ll delve into the main characteristics that define this insurance policy.
Investment Choices
- Diverse Portfolio Options: Policyholders can choose to invest in a range of funds, including stocks, bonds, and money market instruments, depending on their risk tolerance and financial goals.
- Control Over Investments: Unlike traditional life insurance, where the cash value’s growth is relatively fixed, Variable Life Insurance offers the ability to influence the policy’s cash value based on investment performance.
Flexible Premiums
- Adjustable Payments: Policyholders have the option to adjust their premium payments within certain limits, which can be particularly useful during financial ups and downs.
- Premium Top-Ups: Additional funds can be invested into the policy to increase the cash value and, consequently, the potential death benefit.
Withdrawals and Loans
- Access to Funds: Policyholders can make withdrawals or borrow against the cash value of the policy, subject to certain conditions and fees.
- Impact on Benefits: It’s important to note that withdrawals and loans can reduce the death benefit and cash value, affecting the long-term value of the policy.
Benefits of Variable Life Insurance
Variable Life Insurance offers several advantages that can be appealing to those looking for flexibility and potential growth in their insurance policy.
Potential for Higher Returns
- Market-Linked Growth: The potential for higher returns is one of the most attractive features of Variable Life Insurance, as the policy’s cash value can grow based on the performance of the chosen investments.
Estate Planning Tool
- Tax-Deferred Growth: The policy’s cash value grows tax-deferred, which can be a significant advantage for long-term financial planning.
- Flexible Beneficiary Options: Policyholders can name multiple beneficiaries, providing financial security to more than one family member or entity.
Considerations Before Choosing Variable Life Insurance
While Variable Life Insurance has its perks, there are several factors to consider before purchasing a policy.
Investment Risks
- Market Volatility: Since the cash value is tied to investments, it is subject to market fluctuations, which can be a risk if the investments perform poorly.
- Complexity: The nature of managing investments within a life insurance policy can be complex, requiring a good understanding of both insurance and investment principles.
Cost Implications
- Higher Fees: Variable Life Insurance policies typically have higher fees than other life insurance products, due to management and administrative costs.
- Insurance Charges: These policies include insurance charges that can reduce the cash value, particularly in years when investment returns are low.
Making the Right Decision
Assess Your Financial Goals
- Align with Objectives: Ensure that the features of Variable Life Insurance align with your long-term financial objectives, such as retirement planning, wealth accumulation, or providing for your heirs.
Consult with a Financial Advisor
- Professional Guidance: Due to the complexities and risks associated with Variable Life Insurance, it is advisable to consult with a financial advisor who can provide tailored advice based on your individual circumstances.
A Versatile Financial Tool
Variable Life Insurance offers a unique blend of life insurance protection and investment potential, making it a compelling choice for those looking to enhance their financial strategy. By carefully weighing its benefits and considerations, and seeking professional advice, you can make an informed decision on whether Variable Life Insurance is suitable for meeting your financial needs and securing your family’s future.