What is Variable Life Insurance?

What is variable life insurance? How does it work? Over time, we’ve seen how insurance policies work. At this point, you already know what works for you and what doesn’t.

And as our lives change, it also means that insurances need to change in order to adapt to the ever-changing priorities. This is why, for people who have undergone major life events, like buying a home or getting married, it’s important that you take the time to re-evaluate your financial plans and identify all the viable options for you.

And in weighing all your options, you should also consider a lot of risk factors but ultimately, you should choose an insurance policy that works best for you and your future needs.

What is Life Variable Insurance?

It is a type of permanent insurance policy with the added investment, this includes cash value that can grow over the period of your policy. Now, permanent life insurance typically lasts a lifetime as long as the premiums are being paid.

There are three primary components in every policy: death benefit, cash value, and premium. Every time that a payment is paid, a portion of the money goes to the cost of the insurance and the insurer’s fees.

Normally, a variable policy can have many sub-accounts to choose from. Much of the premium being paid goes to investment accounts such as bonds, stocks, and money-market funds.

How Does it Work?

how it worksThe premium is what is usually being referred to as your payment for your policy. This is then divided into portions, some of it goes to your life insurance coverage, broker commissions and the rest is invested in your cash value.

Keep in mind that your account’s cash value can affect your premium payment, which is why premiums are usually fluctuating.  The great thing about it is that you can utilize some of your cash value in order to reduce your expenses for premiums.

However, you might also be in a position wherein you have to increase your premium payments so that your policy keeps afloat even after your cash value falls too low.

Cash value is the portion of your premiums that can be invested depending on your provider.

Another primary component is the death benefit, it is the life insurance coverage that determines how much your beneficiary will receive when you expire. It’s commonly referred to as the face value of your policy. This benefit is income-tax-free to the beneficiary.

There are some policies that offer death benefit structures like equalizing the face value along with the premiums paid. But the most common are level death benefits which are equaled to the face value of the policy upon purchase, and the face amount plus cash value.

Over time, if your cash value grows then it may also increase the death benefit higher than its initial amount. This is so because death benefits should be higher than the cash value and like every other permanent life insurance policy, your beneficiaries will only receive the benefit and not both.

Pros of Variable Life Insurance

The great benefit that you get from variable insurance is that your insurance coverage can practically cover your entire life. There’s a guarantee of a death benefit which means that as long as your premiums are paid up your recipients will receive them once you pass.

Another great advantage of availing a variable plan is that the funds you’ve invested are tax-deferred. This can make your money grow quicker and return tax-free profits that can be generated for you or your beneficiaries.

You also get an investment varies depending on your policyholder and with variety comes more opportunities for you to grow your existing funds. In some cases, your cash value can also be used for the funding of other future premiums.

Lastly, this type of permanent insurance policy usually provides fixed premiums. Thus, you no longer have to worry about incremental changes with your payments in the future.

What About the Cons?

Looking at its disadvantages you can observe how most of these variable plans are expensive. Having all these amazing benefits also means that you have to pay higher costs and if you are looking for cheap insurance, then this is definitely not a good option for you.

With the policy, you never really know how much you’ll earn unlike with other insurance policies that you no longer have to worry about the growth of the cash value. For example, if your cash value falls then the cost of sustaining your death benefit can increase remarkably.

Also, this insurance has a  lot of things to pay for like the administrative fees, management fees and more. The expenses can sometimes be overwhelming. For many, the disadvantages of the policy can outweigh its benefits. They would opt for a much cheaper and simpler life insurance coverage and invest their savings at some other platforms with fewer fees.

Cash Value

build cash valueThe cash value is unique as each policy comes with a prospectus that maps all the policy fees and sub-account expenses. These cash value options are similar to mutual funds.

Thus, the money shall be invested in a particular set of securities like a portfolio of equities and the like.

The cash value has the potential to increase if the sub-accounts grow however, it can also decrease if and when underlying investment also drops.

More often than not, the investment management fees in cash value are often called “basis points” and one basis point equals 0.01%.

And since you’re given cash value investment management fees are listed as “basis points” and one basis can point is equated to 0.01%. The annual growth of your cash value is not taxable like your normal income.

Moreover, you can access your cash values in the year to come and when its properly vetted through loans instead of direct withdrawals, then you can receive the income tax-free.


When purchasing variable life insurance then it’s important to understand mutual funds, stock investments, and other investment mechanisms. Remember that every insurance company has its own formula for calculating their rates.

You should also be brave enough to face the risks as your funds may fluctuate from time to time.

Ultimately, when it comes to buying insurance you should go back to your main purpose of protection. And that’s why before taking any steps, it’s advisable that you take your time to do your research and seek advice from professionals.

Of course, you would want to protect your family and prepare for future needs. That’s why if before selecting your variable life insurance, ensure that the possible benefits outweigh the burden. If you’re looking for high coverage insurance then this is the best path for you.

Linda Chavez

I'm a burial & senior life insurance expert, independent agent, Founder & CEO of Seniors Life Insurance Finder. I have been working in this sector since 2004 and established my own company in 2014. I have a team of seven members, and we are trying hard to share the knowledge we've gathered. We know how difficult often it is to find an affordable policy. Hence, we are doing our best to help you.