Variable Life Insurance

Variable life insurance never expires as long as premiums are paid. These products are designed to satisfy insurance needs, investment priorities and tax planning objectives. They have a cash value component linked to stock market investments, so each policy carries risk.

Rachel Christian, writer and researcher for RetireGuide
  • Written by
    Rachel Christian

    Rachel Christian

    Financial Writer and Certified Educator in Personal Finance

    Rachel Christian is a writer and researcher for RetireGuide. She covers annuities, Medicare, life insurance and other important retirement topics. Rachel is a member of the Association for Financial Counseling & Planning Education.

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  • Edited By
    Matt Mauney
    Matt Mauney, Senior Editor for RetireGuide

    Matt Mauney

    Financial Editor

    Matt Mauney is an award-winning journalist, editor, writer and content strategist with more than 15 years of professional experience working for nationally recognized newspapers and digital brands. He has contributed content for ChicagoTribune.com, LATimes.com, The Hill and the American Cancer Society, and he was part of the Orlando Sentinel digital staff that was named a Pulitzer Prize finalist in 2017.

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  • Financially Reviewed By
    Eric Estevez
    Eric Estevez, Independent Licensed Life Insurance Agent

    Eric Estevez

    Licensed Independent Insurance Broker

    Eric Estevez is a duly licensed independent insurance broker and a former financial institution auditor with more than a decade of professional experience. He has specialized in federal, state and local compliance for both large and small businesses.

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  • Published: August 10, 2020
  • Updated: July 25, 2022
  • 4 min read time
  • This page features 4 Cited Research Articles
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How to Cite RetireGuide.com's Article

APA Christian, R. (2022, July 25). Variable Life Insurance. RetireGuide.com. Retrieved December 5, 2022, from https://www.retireguide.com/life-insurance/permanent/variable/

MLA Christian, Rachel. "Variable Life Insurance." RetireGuide.com, 25 Jul 2022, https://www.retireguide.com/life-insurance/permanent/variable/.

Chicago Christian, Rachel. "Variable Life Insurance." RetireGuide.com. Last modified July 25, 2022. https://www.retireguide.com/life-insurance/permanent/variable/.

What Is Variable Life Insurance?

Variable life is a form of permanent life insurance. This means coverage never expires.

All variable life insurance policies have three main components:
  • Death benefit
  • Cash value
  • Premiums

When you pay your monthly or yearly premiums, part of the money goes toward the cost of insurance and administrative fees.

The rest goes toward the policy’s cash value, which is invested into sub accounts, similar to mutual funds. You get to choose which sub accounts you want to invest in.

You can withdraw or borrow against your policy’s cash value.

Your policy’s cash value grows tax-deferred over time, which means you typically won’t pay taxes on investment gains so long as they remain in your account.

When underlying investments perform well, the policy’s cash value has higher growth potential than other insurance options.

However, when the market performs poorly, your policy’s cash value can decrease.

This may also reduce the death benefit your heirs receive, depending on how your policy is structured.

Variable life insurance is regulated like a security because it exposes consumers to potential market risk.

Finally, like all forms of life insurance, variable life policies pay a specific amount of money — known as the death benefit — to your beneficiaries after you pass away.

You may select a level death benefit to ensure your beneficiaries receive the policy’s face value when you pass away. However, they will not receive any money left in your cash value.

For an additional cost, you can structure your variable life insurance policy to pay your beneficiaries the face amount of your policy plus its cash value after you die.

Tip
Ask the insurance company or agent for a copy of the policy’s prospectus. This free document provides important details about the variable life insurance policy, including fees and expenses, investment options and death benefits.
Josh Curtis, founder and lead investment advisor of Clarity Financial LLC, explains your options with index or variable life insurance.

Variable vs. Variable Universal Life

The cash value of variable universal life insurance policies can be used to pay premiums.

As with universal life insurance, a variable universal life policyholder can adjust the size and frequency of premium payments — within certain limits.

This flexibility is one of the key features of variable universal life policies.

Meanwhile, traditional variable life insurance features fixed premium payments over the life of the policy and more death benefit guarantees.

Basic Features of Variable Life and Variable Universal Life
  • Cash value accounts linked to investment options offered by the insurance company.
  • Control over selecting the investment options.
  • Cash value can fluctuate due to the performance of investments.
  • The death benefit may also fluctuate, depending on how your policy is structured.
  • Governed by the U.S. Securities and Exchange Commission.
  • Cash value grows on a tax-deferred basis.
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Benefits and Drawbacks of Variable Life Policies

Variable life insurance provides a unique opportunity to combine insurance coverage with an investment component.

Benefits of variable life insurance include:
  • Potential for higher cash value growth
  • Control over investments
  • Tax advantages

However, variable life tends to be more complicated than other life insurance options, such as term life insurance.

It’s important to understand the drawbacks as well as the advantages of this policy type before making a decision.

Disadvantages of Variable Life Insurance
Policy Lapse
If you do not maintain enough money in your cash value to cover policy fees and expenses, your policy may lapse and terminate. This can happen if you miss premium payments or make poor investment choices. If your policy lapses, your beneficiaries will not receive any death benefit.
Fees and Expenses
Variable life insurance policies tend to have more fees and expenses than other permanent life insurance options. They also have higher premiums than term life insurance.
Investment Risk
Variable life insurance exposes you to market risk and volatility. As the U.S. Securities and Exchange Commission notes, you can lose money in a variable life insurance policy. Each fund you invest in comes with its own management fees and unique risks. Make sure you understand how each fund works before investing.
Last Modified: July 25, 2022
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4 Cited Research Articles

  1. U.S. Securities and Exchange Commission. (2018, October 30). Investor Bulletin: Variable Life Insurance. Retrieved from https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_varlifeinsurance
  2. Insurance Information Institute. (n.d.). What are the different types of permanent life insurance policies? Retrieved from https://www.iii.org/article/what-are-different-types-permanent-life-insurance-policies
  3. Legal Information Institute at Cornell Law School. (n.d.). Variable Universal Life Insurance. Retrieved from https://www.law.cornell.edu/wex/variable_universal_life_insurance
  4. U.S. Securities and Exchange Commission. (n.d.). What Is Variable Life Insurance? Retrieved from https://www.investor.gov/introduction-investing/investing-basics/investment-products/insurance-products/variable-life