Variable Life Insurance – Benefits, Features, and How It Works

A variable life insurance policy offers both life coverage and the opportunity to grow your savings through investments. Unlike traditional life plans, which provide a fixed cash value, a variable life policy allows you to allocate part of your premium into different investment funds, potentially ...read more

This type of policy provides flexibility, as premiums can be adjusted and the death benefit can vary. However, it also comes with greater risk, as the cash value and death benefit can fluctuate with market conditions.

To learn more about how a variable life insurance policy works, its benefits, risks, and how it can fit into your financial plan, continue reading our detailed guide!

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What is Variable Life Insurance?

Variable life insurance provides both life coverage (sum provided to beneficiaries in case of the insured’s death) and the chance to grow your savings through investments. Unlike traditional life policies, which offer fixed returns on the cash value, this policy allows you to invest part of your premiums in various investment funds.

Note: The value of your cash value can increase if the investments perform well, but it can also decrease if the market drops, adding more risk.

After the first year, premiums are flexible within certain limits, allowing you to adjust payments or even skip them. However, this can affect the death benefit, so it’s important to ensure the policy remains adequately funded.

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What are the Features and Benefits of Variable Life Insurance Policy?

Listed below are the general features and benefits of variable life plans —

You can borrow or withdraw money from the policy’s cash value.
You can use the withdrawn money for anything, like supplementing retirement income or funding a vacation. With investment options, the cash value can grow more than other life insurance types.
A variable life insurance policy can also diversify your investment strategy. The death benefit is paid to your beneficiaries. Some riders may be available to add benefits like access to the death benefit if you're diagnosed with a chronic, critical, or terminal illness.

How Does a Variable Life Insurance Plan Work?

Like other life insurance policies, a variable life insurance policy pays a death benefit to your beneficiaries after you pass away.

Variable life and variable universal life insurance policies have a cash value component that changes based on –

The premiums you pay
Fees and expenses from the insurance company
The performance of your chosen investments (similar to mutual funds)
Any loans or withdrawals you make from the cash value

Variable life insurance allows you to decide how to invest the cash value. However, if you want a policy that requires little attention, this type of insurance may not be the best option.

When you pay premiums, they cover:

The actual cost of life insurance for the insured
The insurance company’s fees
Fees related to your investment choices
Your cash value

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Who Should Buy a Variable Life Insurance Policy?

Variable life plans are ideal for those looking for long-term investment opportunities and willing to accept market risks for potentially higher returns. Here are some situations where it may be a good choice –

Long-term Investment Goals - If you have long-term financial goals and are open to market risks, this policy could be a good fit
High-risk Tolerance - If you're comfortable with market risks and volatility, variable life insurance may work for you
Estate Planning - This policy can help you pass wealth to heirs in a tax-efficient way, making it suitable for estate planning
Retirement Planning - If you want to build a retirement fund and are willing to take on market risks for higher returns, this policy may be a good choice

Which Factors Affect Variable Life Insurance Premiums?

Several factors influence the premium for a variable life policy — understanding these factors can help you make a well-informed decision.

Age - Younger individuals generally pay lower premiums as they are seen as lower risk to insurers
Health Condition - Pre-existing conditions, lifestyle habits like smoking, and family medical history can lead to higher premiums or even denial
Gender - Women typically pay lower premiums due to their longer life expectancy
Sum Assured - Higher coverage levels result in higher premiums since the insurer takes on more financial risk
Policy Term - Longer policy terms usually mean higher premiums as the insurer provides coverage for a longer period
Premium Payment Term - Shorter payment periods result in lower premiums, while longer terms may increase the overall amount paid
Investment Fund Options - Funds with higher fees may lead to higher premiums
Riders - Additional benefits like accidental death or critical illness coverage can increase premiums
Occupation & Lifestyle - High-risk jobs or risky hobbies, such as skydiving, may result in higher premiums

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