Reader’s Question:

My neighbor here in Washington is trying to interest me with this so-called Variable Life Insurance. Can you tell me more about it?

Paul

Seattle, WA

Your neighbor there in Washington just might have a point. Just to start, variable life insurance is generally classified as universal life insurance that builds up a cash value. If you have this type of life insurance, you will see how flexible this is as you can invest the cash value in different separate investment accounts comparable to mutual funds. This is called “variable” because it has a variable component to it, unlike traditional life insurance policies. I say “flexible” because even the choice of where to put the money is entirely up to the policy owner. With this type of policy, you can invest in the stock or bonds market.

Also, I mentioned that it is also universal life insurance, meaning its premiums are flexible, too. You can pay zero premiums in a given month up to a limit set by the Internal Revenue Code for life insurance. Unlike with a whole life insurance policy, a variable life insurance policy owner will not worry about the policy getting lapsed in case a missed a payment or two. Like a traditional insurance, death benefits are also payable any time as long as there is enough cash value to pay the costs of insurance in the policy.

Another good thing about a variable life insurance is that the death benefit given is not just the face amount in the contract, but rather the interests earned are also credited when your beneficiaries make a claim, while a whole life insurance will only pay the amount stated as your face value.

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