Variable Life Insurance
With variable life you decide where your money is invested and bear the risk of those investments.
Variable life lets you invest part of your cash value in stocks and other securities, through mutual funds run by the insurance company. With a variable-life policy, both the death benefit and the cash value depend on the performance of the investments you choose, which can go down as well as up. There is no guaranteed minimum interest rate for the cash value, as there is with a straight universal-life policy.
You decide how much of your net premium -- that is, the amount left after commissions and other expenses are paid -- will be invested in different areas: stocks, bonds and short-term money-market funds. (Policyholders' investment funds are segregated from the insurance company's general accounts so that they reflect the actual experience of the investments chosen.) Because you decide where your money is invested and bear the risk of those investments, variable life is considered a security and is the only kind of life insurance sold by prospectus.
No guaranteed cash value
A minimum death benefit -- the policy's face amount -- is guaranteed, but your cash value is not. If your investments perform poorly over a long time, it's possible your policy could end up with a cash value smaller than what you would have achieved with a traditional whole-life policy. A poorly performing policy would represent an extremely expensive form of life insurance if you died after paying premiums for many years. On the other hand, good performance in the investment account could increase the death benefit above the guaranteed level or create a substantial cash value.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Details of variable-life policies are spelled out in their prospectuses, which you can get from the agent or the company. This is a complex product, so read the prospectus carefully. The first year's premium is largely consumed by one-time administrative costs and the agent's commission. Thus, it takes several years to accumulate significant cash values even if the investment portion of the policy does well. Also, a variable-life policy must be watched closely after you buy it. It will be up to you to change your investments to get the best return.
-
Stock Market Today: Nasdaq Soars on Strength in Magnificent 7 Stocks
The main indexes started the week strong after several mega-cap stocks rallied.
By Karee Venema Published
-
Target Limits Self-Checkout To 10 Items
Target launches new self-checkout lanes on heels of a new paid membership plan and expanded brand offerings.
By Jamie Feldman Published
-
When's the Best Time to Buy a Domestic Flight? The Kiplinger Letter
The Kiplinger Letter A new study by CheapAir.com has crunched the numbers.
By Sean Lengell Published
-
Woes Continue for Banking Sector: The Kiplinger Letter
The Kiplinger Letter Regional bank stocks were hammered recently after news of New York Community Bank’s big fourth-quarter loss.
By Rodrigo Sermeño Published
-
Anxious Flyers Take Note: The Kiplinger Letter
The Kiplinger Letter Whether it's the routes to avoid that have the most turbulence or the safest airline, we've got you covered.
By Sean Lengell Published
-
The Auto Industry Outlook for 2024
The Kiplinger Letter Here's what to expect in the auto industry this year. If you’re in the market for a car it won’t be quite as daunting as it was during the pandemic and after.
By David Payne Published
-
Two More Travel Trends for 2024: The Kiplinger Letter
The Kiplinger Letter As the world gets moving again, two more travel trends to consider: Solo cruising and airline passengers with loaded guns.
By Sean Lengell Published
-
Three Travel Trends Will Drive the Industry This Year: The Kiplinger Letter
The Kiplinger Letter New travel trends like set-jetting, destination “dupes” and tour traveling will propel the travel industry in 2024.
By Sean Lengell Published
-
State Economics — Spotlight on New England: The Kiplinger Letter
The Kiplinger Letter After a better-than-expected 2023, New England states will see only modest employment growth in 2024.
By David Payne Published
-
2024's Social Media and Smartphone Trends: The Kiplinger Letter
Video-sharing giant, YouTube, dominates as teens' go-to social media outlet.
By John Miley Published