Variable Life Insurance
Plain English
Variable life is permanent life insurance where you choose how the cash value is invested, for example in stock or bond funds. If the investments do well, the cash value can grow faster. If they do badly, your cash value and even the death benefit can go down, although some policies guarantee a minimum death benefit.
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Definition
Variable life insurance is a type of permanent life insurance that combines a death benefit with a cash value the policyholder can invest in options such as stocks, bonds and money market funds. The cash value, and in many policies the death benefit, rises or falls with how those investments perform. Variable universal life adds universal life's adjustable premiums.
Why It Matters
Variable life moves investment risk onto the policyholder. That matters for families who are counting on a set amount: unless the policy guarantees a minimum, the death benefit isn't fixed. It also carries investment fees on top of insurance charges, so it's worth understanding before treating it as a savings plan.
Real-World Example
Imagine someone puts most of their variable life cash value into a stock fund. Over several good years it grows quickly. Then the market drops sharply, the cash value falls, and the yearly statement shows a lower death benefit than the year before. Their policy guarantees a minimum death benefit, so their family's payout can't fall below that floor, but the cash value they planned to borrow against is smaller.
Personal vs. Commercial
For individuals: Variable life policies are generally treated as securities, so they come with a prospectus describing fees and investment options. Read it, and ask whether the death benefit has a guaranteed minimum.
Common Misconceptions
- The death benefit can't change. In variable life it may decrease if investments perform poorly, unless a minimum is guaranteed.
- Variable and universal life are the same. Variable life's cash value is invested by the policyholder; universal life's generally earns interest.
- Investment growth comes free of cost. Fund fees and insurance charges come out of the cash value.
Key Takeaways
- Triple-I: variable life "combines death protection with a savings account that you can invest in stocks, bonds and money market mutual funds."
- The value may grow faster, but if investments do poorly, the cash value and death benefit may decrease.
- Some policies guarantee the death benefit won't fall below a minimum.
- Variable universal life combines variable life's investment risk with universal life's adjustable premiums and death benefit.
Frequently Asked Questions
What is variable life insurance?
Permanent life insurance whose cash value you invest in options such as stock, bond and money market funds, so the value can rise or fall.
Can a variable life death benefit go down?
It can. Triple-I says that if your investments don't perform well, your cash value and death benefit may decrease, though some policies guarantee a minimum death benefit.
What is variable universal life insurance?
A hybrid with variable life's investment risks and rewards and universal life's ability to adjust premiums and the death benefit.
Is variable life the same as whole life?
Both are permanent life insurance, but traditional whole life has a fixed premium and its savings grow from dividends the company pays, while variable life's cash value depends on investments you choose.
Related Terms
Related Coverages
- Life Insurance
Related Scenarios
Explore the rest of the Life Insurance category.
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The factual claims on this page were checked against these sources. Rules and figures change, so check the source itself if you need to confirm the current version.
- iii.orgWhat are the different types of permanent life insurance policies? · Insurance Information Institute (Triple-I)
Educational information, not advice: This page is for general education only, not legal, financial, or insurance advice. Actual coverage, discounts, and requirements depend on your policy’s wording, your insurer, and the laws of your state. Confirm specifics with your own insurer or a licensed agent before making a decision. Insurpedia does not sell insurance and does not recommend specific insurers.