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How variable life insurance can protect you and make you money

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By
Aly J Yale
Aly J. Yale is a contributing writer for the Managing Your Money section for CBSNews.com, covering various personal finance topics, including investing, homebuying, loans and more.
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Aly J Yale

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Insurance protecting family health live and house concept.
Variable life insurance combines coverage with investing to help policyholders grow their wealth. Getty Images

Life insurance is a type of insurance policy that pays your dependents when you pass away. It can be a good way to provide for your spouse, children and other loved ones — particularly if they rely on your income to get by.

When choosing a life insurance policy, there are many types to consider. Variable life insurance — which also contains an investment component — is one of these options. 

If you're in the market for life insurance, or simply want to boost the protection you already have, now is a good time to act. .

Here's what you should know about the benefits of variable life insurance.

What are the benefits of variable life insurance?

Variable life insurance policies have quite a few advantages. They offer:

  • Premium and benefit flexibility: You have the option to use your policy's cash value to cover your premiums or to increase your death benefit.
  • Growth: Variable life insurance policies give you an opportunity for growth. You can invest your cash value in various securities and stocks, which allows you to grow your account and death benefits over time.
  • Access to funds: With variable life insurance, you can borrow against your policy's cash value or even withdraw from it. This gives you access to cash if an emergency arises or you just need extra income in retirement.
  • Tax perks: The cash value accounts on variable life insurance policies are tax-deferred, meaning you'll only pay taxes when withdrawing money. Your beneficiaries also won't pay taxes on the payment they receive when you die.

Variable life insurance policies are also permanent, meaning you'll have protection for your full lifetime, no matter when you start your policy. Other options, like term life insurance, for example, only last a limited amount of time (usually 10 to 30 years). 

If this sort of policy sounds beneficial then get started now. A life insurance expert can help you .

What is variable life insurance?

When considering variable life insurance, it's important to understand exactly what it is. Variable life insurance is a type of permanent life insurance designed to last a lifetime. It offers a lump sum payment to your beneficiaries when you die while also giving you access to a cash value account when alive. This account can earn interest, be invested in the stock market or various other securities and be borrowed against. You can also withdraw cash from it.

With variable life insurance policies, both premiums and death benefits are adjustable, so once your policy's cash value reaches a certain point, you can use the balance to reduce or even cover your premiums entirely or increase or decrease your death benefit as needed. 

How does variable life insurance work?

When you have a variable life insurance policy, you'll pay monthly premiums — part of which will go toward your death benefit (what your beneficiaries are paid when you pass) and part will go toward the policy's cash value account. There are also sub-accounts, which allow you to invest your cash value in the stock market or other investments and potentially grow your wealth. 

Once you pass on, your beneficiaries will be paid a lump sum death benefit based on your policy and the cash value you've built up to that point.

Other considerations

Variable life insurance isn't right for everyone. Here are some other considerations to note:

  • They're risky: Investing is inherently risky, and depending on your investment decisions, you could lose money as a result. There is also a risk if you start using your policy's cash value or borrowing against it.
  • They're hands-on: Variable life insurance policies require you to be involved in managing your account and your investments. You'll need to choose your investment vehicles and actively monitor your cash value account's growth over time.
  • No guaranteed death benefit: There is no set death benefit with variable life insurance policies. Instead, the payout will depend on your investment decisions and the value of your policy when you pass. 

There are pros and cons to any type of insurance policy, so if you're not sure which is right for your needs and budget, . They can help you determine the best coverage for your unique situation.

How much does variable life insurance usually cost?

Variable life insurance premiums vary by the insurance provider, and other factors, like your age, health and more. To make sure you get the best price, . An insurance broker can also help you compare possible insurers if you're not sure where to start.

Edited by Matt Richardson

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