Traditional Variable Life Insurance is a type of life insurance policy that combines elements of both life insurance and investment. Like other forms of life insurance, it provides a death benefit to the beneficiaries upon the policyholder’s death. However, what sets variable life insurance apart is the investment component.
Here are key features of Traditional Variable Life Insurance:
- Death Benefit: The primary purpose of any life insurance policy is to provide a death benefit to the beneficiaries upon the insured person’s death. The death benefit in variable life insurance is usually a fixed amount, but it can vary based on the performance of the underlying investments.
- Premiums: Policyholders pay regular premiums to keep the policy in force. These premiums cover the cost of insurance and administrative fees. The policyholder may also have the flexibility to adjust the death benefit and premium amounts within certain limits.
- Cash Value: A portion of the premium paid goes into a cash value account, which is invested in a variety of sub-accounts. The cash value has the potential to grow over time based on the performance of the chosen investments.
- Investment Options: Variable life insurance policies allow policyholders to allocate their cash value among different investment options, such as stocks, bonds, and mutual funds. The policy’s cash value and death benefit can fluctuate based on the performance of these investments.
- Risk and Return: Since the cash value is invested in the financial markets, there is an element of risk involved. If the chosen investments perform well, the cash value and death benefit may increase. However, if the investments perform poorly, the cash value and death benefit may decrease.
- Policy Loans and Withdrawals: Policyholders may have the option to take out loans against the cash value or make withdrawals, although these actions can affect the overall policy performance and may have tax implications.
It’s important to note that while variable life insurance offers potential for cash value growth through investment, it also comes with higher risk and fees compared to traditional forms of life insurance like whole life or term life insurance. Policyholders should carefully consider their risk tolerance, financial goals, and investment knowledge before opting for a variable life insurance policy. Additionally, seeking advice from a financial advisor is recommended to ensure that the policy aligns with the individual’s overall financial strategy.