Variable Permanent Life Insurance is a form of permanent coverage that combines a life insurance death benefit with an investment component. Part of your premium goes into sub-accounts (similar to mutual funds), so your cash value can grow—and fluctuate—based on market performance. Here’s what you need to know.
1. How It Works
- Premium Allocation: A portion of each premium pays for insurance costs and fees; the rest goes into investment sub-accounts you choose.
- Investment Options: You select from a menu of equity, bond, or money-market sub-accounts.
- Cash Value Growth: The cash value rises or falls with your chosen sub-account performance.
- Death Benefit: Pays a guaranteed minimum (face amount) plus any accumulated cash value to your beneficiaries.
2. Key Benefits
- Tax-Deferred Growth
Your investment gains aren’t taxed as long as they remain inside the policy. - Market Upside Potential
You can capture market gains—unlike whole life, which credits a fixed rate. - Flexible Premiums
You may adjust premium payments within policy limits to accommodate changing budgets. - Adjustable Death Benefit
You can often increase or decrease the face amount (subject to underwriting) to match your needs.
3. Potential Risks
- Market Downturns: Poor sub-account performance can reduce your cash value and potentially your death benefit.
- Higher Fees: Investment management and mortality charges tend to be higher than with universal or whole life policies.
- Policy Lapse Risk: If cash value falls too low and you stop paying premiums, the policy can lapse.
4. Who Should Consider It
- Long-Term Investors: You’re comfortable with market fluctuations and want exposure to equities inside a life policy.
- High Earners: You’ve maxed out other tax-advantaged accounts and seek additional tax-deferred growth.
- Estate Planners: You need a growing death benefit to cover future estate taxes or legacy goals.
5. Key Costs
| Cost Type | What You Pay |
|---|---|
| Mortality & Expense Fees | Charges for the death benefit and administration. |
| Investment Management Fees | Fees on each sub-account, similar to mutual funds. |
| Premium Load | Front-end costs deducted from your premium. |
6. How to Choose a Policy
- Compare Sub-Account Lineups
Look for diversified options with competitive historical returns. - Review Fee Structures
Compare mortality, administrative, and investment fees across insurers. - Check Insurer Strength
Verify financial stability ratings (e.g., A.M. Best, Moody’s). - Understand Guarantees
Confirm the minimum death benefit and any guaranteed cash-value riders.
7. Frequently Asked Questions
Q1: Is variable life the same as variable universal life?
A: No. Variable Universal Life adds flexible premiums and death benefit options, while Variable Life has fixed premiums and benefits.
Q2: How liquid is the cash value?
A: You can take loans or withdrawals, but loans accrue interest and withdrawals may reduce your death benefit.
Q3: What happens if sub-accounts lose money?
A: Your cash value drops accordingly. If it falls too low, you must increase premiums or risk policy lapse.
Q4: Are investment gains taxed?
A: No, as long as gains stay in the policy. Withdrawals above premiums paid may trigger taxes.
Q5: How do I pick sub-accounts?
A: Match your risk tolerance and time horizon—equity funds for growth, bond or money-market for stability.
Q6: Where can I learn more?
A: Read Investopedia’s guide here:
<a href=”https://www.investopedia.com/terms/v/variablelife.asp” target=”_blank” rel=”noopener”>https://www.investopedia.com/terms/v/variablelife.asp</a>
Or visit FINRA’s overview:
<a href=”https://www.finra.org/investors/learn-to-invest/types-investments/insurance-products/variable-life-insurance” target=”_blank” rel=”noopener”>https://www.finra.org/investors/learn-to-invest/types-investments/insurance-products/variable-life-insurance</a>
8. Next Steps
- Assess Your Goals: Decide if market-linked growth inside life insurance fits your plan.
- Get Quotes: Compare policies, fees, and sub-account options from multiple carriers.
- Consult a Professional: Work with a fee-only financial planner or insurance specialist.
9. Conclusion & Contact Us
Variable Permanent Life Insurance offers a unique blend of lifelong coverage and market-based cash-value growth. But it carries higher risks and fees than other life policies. To see if it’s right for you, compare options carefully and get tailored advice.
Ready to explore your options? Contact us today for a free consultation and personalized quote.