You are making a smart move by reading the type of insurance you are interested in and your options. It is important to take notes and assess if this is the life insurance that best fits your needs.
What is Variable Life Insurance?
Many people are gaining interest in getting variable life insurance because of the investment feature. But, there are many more things to know about this type of life insurance. It might need strong convincing for you to get covered or look for a different one.
Variable life insurance is a type of insurance that:
- Will cover you throughout your life;
- Has a guaranteed death benefit; and
- Provides you control over your cash value
Permanent Life Insurance
This insurance ensures that you are covered for life as long as you meet certain requirements.
It would help if you were consistent in paying premiums and maintaining the policy in good standing. Also, you should be a responsible policyholder so you can claim the benefits you are paying for.
Death Benefit
Death is something not everyone wishes to talk about but wants to be prepared for. With variable life insurance, your loved ones will receive an amount that will help them financially.
This insurance covers most types of deaths, including natural causes, accidents, and illnesses. Your beneficiaries may claim this with minimal requirements such as a death certificate, policy document, and a completed form.
Cash Value
With the payment of premiums on your policy, a portion is accumulated in what is known as cash value. The higher your cash value is, the higher fees concerning your policy are covered or even withdrawn.
Although risky, this benefit allows you to control how your cash value earns through investment. You can freely decide where to allot your cash value like stocks, bonds, mutual funds, and fixed accounts.
Things to Consider
Like many other life decisions, getting insurance is something you must be aware of before committing. You may be interested in the death benefit, but there are other things to know before deciding.
For example, there are higher fees and more expenses in variable life insurance. You need to ask yourself if you are prepared and if the features that require extra fees are necessary.
It would be best if you also thought of your beneficiaries. If you can maintain the policy to receive the death benefit, then variable life insurance is for you.
Premiums
For cash value in life insurance such as variable, your premiums pay for monthly or annual fees related to your policy. There is no fixed amount for insurance premiums as these are calculated based on several personal information.
In addition, an amount from your premiums is also added to the cash value of your variable life insurance. It is important to know that your first premium payment will be higher than the required amount.
Policy Fees and Expenses
The many features of insurance which enticed you when researching also have several equivalent fees and expenses. For example, you will have to pay a fee to your investment managed by the insurance company.
With these fees, you benefit from your provider as well because they make money out of premiums.
Surrender Charge
Your insurance companies need to retain your records while you are still paying the fees. So, if you decide to cancel your life insurance policy, you may be asked to pay a certain amount.
Depending on your policy and provider, the period where the surrender charge still applies may vary. The longer you keep paying for your variable life insurance, the lower your surrender fee will be.
Death Benefit
When comparing life insurance policies, the assistance you could provide your loved ones you leave behind is a huge factor. Death benefit, also called face amount, is the portion your beneficiaries will receive when you pass away.
This feature may already be included in the policy or require an additional premium. It is essential to confirm with your insurance company as this will affect your policy fees.
Cash Value
Note that a variable life insurance policy functions as insurance and investment. Since you have control over your investment, remember that the value of your policy depends on your investment decisions.
In short, the better the performance of your chosen investment, the higher value your policy will have. If you earn enough from your cash value, you may be able to pay for your premiums from that instead.
This feature comes with a risk many people are careful of. Many companies assist with additional services to heighten your success in increasing your cash value.
If you play your cards right, your cash value will help in the payment of your:
- Children’s education
- New business
- New home
- Needs after retirement
Investment Options
This feature provides more flexibility on your policy to choose and control where your cash value goes. Your investment gains are entirely up to you, so careful review and assessment will help you in the long run.
There are many benefits from a well-performing investment that will be to your advantage. Ensure to do your research and consult an expert to know if you are making the right decisions.
Withdrawal and Loans
When you have earned enough money from your cash value, you may make withdrawals or take loans. Another good thing about this is that loans are generally considered to be non-taxable.
Prospectus
Your investment is a huge element in the maintenance of your life insurance. And, you will want your investments to perform better so you can have them pay for your premiums instead.
Above all, you need to be thorough in selecting where your cash value will grow. The outline will help you understand your investment by your insurance company and specific details on options.
Advantages and Disadvantages
Finding the perfect balance that will suit your needs and financial capacity is a must. Furthermore, you should assess yourself and your ability to pay for your insurance continuously.
Try to check the features below and see if these are the things you deem necessary. If you think that there are more losses than benefits, you may consider another type of insurance.
Advantages
- Higher possibility of earning, which will help pay your premiums.
- Assurance that upon your death, your beneficiary will receive monetary assistance.
- Flexible choices for your premiums are based on your payment capacity.
- Control over your investments with numerous options that will match your risk appetite.
- Usually, tax-free loans, which you may take with good cash value.
Disadvantages
- Dependence on your investment performance means that the better your decisions are, the more you will earn.
- High surrender fees are not suitable for short-term saving goals.
- Large fees and expenses due to additional services in managing your investment.
- Possibility of incurring tax from loans.
- Reliance on the insurance company’s stability that when the company fails, you may lose your insurance.
Why you Need Variable Life Insurance
When you shop around for life insurance, you will see many types and options to choose from. And, if variable life insurance is what you are looking for, there are many things to consider.
You should be able to identify your risk appetite and the right insurance company for you. The best way to find the right policy for you is to speak with an expert who can guide you.
Variable life insurance is best for people who:
- Are interested in obtaining life insurance and investment at the same time,
- Would like to have various options for investments,
- Are conscious of taxes,
- Have a high tolerance for investment risks,
- Looking for a long-term investment,
- Financially prepared to maintain the policy and not surrender before the fees are waived.
It is beneficial to keep in mind that earning from your investments does not guarantee lower fees and expenses. The market is constantly changing, so your policy’s status will not always be stable.
You should determine potential gains and losses because the most important thing is assisting your loved ones upon your death. Again, your payments and earnings will eventually lose value if you have more losses than gains.
To summarize, remember the following when buying variable life insurance:
- The benefits you will get depend on the risks you want to take.
- This type of insurance may cost you more because of the added features.
- This kind of policy does not guarantee gains because there is always the risk of losing your money.
- If you are not financially prepared and your investments are not performing well, you may lose your policy.
- The prospectus can change your life, so make sure to review it properly.
- There is also a risk of losing your investment if your insurance company is not stable.
Conclusion
There is no formula in predicting the future, so it is best to secure you and your loved ones. Set your goals and work on them so you will be able to reap the benefits of your insurance policy.