Variable life insurance is a type of permanent life insurance that provides a death benefit and an investment component. In a variable life insurance policy, policyholders can allocate a portion of their premiums to various investment options such as stocks, bonds, and mutual funds. The cash value of the policy, which is the savings or investment component, fluctuates based on the performance of these underlying investment options.
The “guaranteed” aspect of variable life insurance typically refers to the minimum guaranteed death benefit, which is the amount that will be paid out to beneficiaries upon the death of the insured, regardless of the performance of the investment component. This guaranteed death benefit provides a level of security to policyholders, ensuring that there is a minimum amount that will be paid out even if the investments do not perform well.
It’s important to note that while there is a guaranteed minimum death benefit, the cash value of the policy is not guaranteed and can vary based on the performance of the chosen investments. If the investments perform well, the cash value and potential death benefit may increase. Conversely, if the investments perform poorly, the cash value and death benefit may not grow as much as expected.
Variable life insurance is a complex financial product, and potential policyholders should carefully consider their financial goals, risk tolerance, and investment knowledge before purchasing such a policy. Additionally, it’s advisable to consult with a financial advisor or insurance professional to fully understand the terms, costs, and potential risks associated with variable life insurance.