Understanding Life Insurance

Variable Life Insurance

Variable life works in much the same way as a universal life policy with several key differences. The largest benefit of a variable life insurance policy is the ability to invest the cash value in a variety of investment vehicles, including stocks, bonds, and mutual funds. Because of this, the government considers variable life insurance a security. In a universal life policy, the insurance company guarantees the cash value won't diminish in a down market. A variable life policy, on the other hand, subjects the cash value to market risk. If the cash value increases, variable life provides a way for the policyholder to utilize his market gains with a tax advantage. As long as the policyholder takes the proceeds in a loan instead of as a withdrawal, they are tax-free.