What is variable life insurance?

UPDATED: Jun 8, 2010

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Asked June 8, 2010

1 Answer

Variable life insurance is a type of whole life insurance policy. A whole life policy is one that does not expire and will remain in effect until the policy matures or the insured person passes away, as long as the premiums are kept up to date. The other major type of life insurance is a term life policy, which is only effective for s specified period of time and then expires, forfeiting any money you have paid into the policy.

The term "variable" refers to the fact that the policy has a changing premium cost, according to the current market performance of the policy. The reason for this change is because a variable life insurance policy allows the policy holder to make decisions on how the premiums are invested, and are subject to the variable conditions of the stocks or mutual funds. Investment returns can be paid to the policy holder, but are commonly applied to the premiums, reducing the amount the policy holder must pay.

Variable whole life insurance is sometimes very expensive, especially if the selected stocks and bonds do not perform well. A worst case scenario could result in the policy becoming almost worthless, while the best case scenario could result in a policy being paid off years ahead of schedule or large profits for the holder. No one can completely predict what the world's monetary markets will do, but choosing a variable life insurance policy is dependent on the policyholder making wise choices or quickly reacting to sudden fluctuations in the market.

Answered June 8, 2010 by Anonymous

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