Variable Life Insurance – What It Is & How It Works

Are you seeking a life insurance policy that not only builds cash value but also allows you to actively participate in investing that cash value? If so, variable life insurance could be the right choice for you.

Variable Life Insurance - What It Is & How It Works

However, your decision depends on your specific goals, as variable life insurance offers a blend of investment opportunities, long-term coverage, and tax planning benefits.

Before committing to this type of policy, it’s essential to have a clear understanding of how it operates. This article aims to provide you with comprehensive insights into variable life insurance. Therefore, we implore you to read through to be enlightened.

What is Variable Life Insurance?

A variable life insurance policy is a form of permanent life insurance that establishes a lasting agreement between you and an insurance company. In the event of your passing, this type of life insurance provides a death benefit to your designated recipients or beneficiaries.

Designed to address specific investment goals, insurance needs, and tax planning objectives, it requires your active involvement in selecting investment options for the cash value.

This sets it apart from other policies, like whole life insurance, where investment decisions are solely made by the life insurance company.

How Does Variable Life Insurance Work?

How a variable life insurance policy works is similar to other types of life insurance. You pay a premium, and your receivers or beneficiaries get a benefit when you are gone. Variable life insurance policies include a cash value component that changes based on the following:

  • The expenses and fees charged by the insurance company.
  • The withdrawals or loans you take have a cash value.
  • The performance of the investments you have chosen.
  • The amount of premiums you pay.

Furthermore, this insurance gives you the freedom to choose how you want to invest the cash value.

But you need to make a choice, so if you need a life insurance policy that you won’t be able to pay attention to, then a variable life insurance policy is not the best option for you.

Choosing A Death Benefit Option For Variable Life Insurance

Some policies guarantee your beneficiaries a fixed death benefit after your passing.

For example, if your policy’s face amount is $1,000,000, that’s the amount your beneficiaries receive, irrespective of the cash value when you pass away. The cash value goes back to the life insurance company.

In contrast, a policy with a variable death benefit can fluctuate based on the cash value amount. The policy you’re considering might offer various death benefit options, such as:

  • Face amount plus the premium payments you made.
  • Face amount plus the cash value you accumulated.

However, your financial advisor needs to understand the specific death benefit you prefer, enabling them to identify policies that align with your preferences.

Variable Life Insurance Pros and Cons

If you are still contemplating whether a variable life insurance policy is worth it, consider the following pros and cons.


  • When you take money from your cash value, you can make use of it for anything you like, from adding retirement income to going on a lavish cruise.
  • The death benefit will be paid to your beneficiaries tax-free.
  • Cash value builds on a tax-deferred basis. You will not have to worry about taxes unless you withdraw money from the cash value.
  • It can be used to diversify your overall investment strategy.
  • Life insurance riders may be available that will add treasured features to the policy, like a critical illness, chronic illness, or terminal illness rider that will let you access money from your death benefit if you are diagnosed with the condition after buying the policy.
  • Taking out loans or withdrawals against the policy’s cash value.
  • Investment options offer the potential to grow in cash value compared to some other types of life insurance.


  • Policies have fees and other charges associated with the policy’s investment component.
  • Not paying back a loan made against the cash value account will surely reduce the death benefit amount.
  • Market volatility can harm the policy’s cash value.


A variable life insurance policy is a type of insurance that can help fulfill your investment objectives, financial requirements, and tax planning goals.

However, it is important to know that these policies may not be suitable for everyone, and you should consider both the potential risks and rewards of investing in the market.

To make a conversant decision, you should seek the advice of a financial advisor who can help you determine the options that are best suited for your unique financial situation and goals.

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