The Variable Life Insurance Policy

The purpose of variable life insurance policies is to marry the features of whole life insurance with an investment program. Premiums and cash values are directed to specific investment opportunities as the life of the policy continues. In the event of death of the life assured, the insurer will pay at least the face value of the policy. However, if the investment vehicles chosen have not performed, the policy's cash value may be erased or severely impaired. Of course under the right market conditions and given wise investing actions, the profits that can be attained can be very attractive. Whether such a program affords the equivalent of a term life insurance policy plus an investment program depends on the person or persons directing the investment choices and the skills and amount of time they can bring to monitoring their investments and life insurance portfolios.

Apart from the investment element, the variable life policy is very similar to regular whole life. In both cases, death benefits remain fixed, the premiums remain fixed by stipulation and the cash value of the policy can be used to borrow money. Cash values accumulated by the policy are tax-deferred in both cases. The investment portion is a "security" as defined by the SEC and functions accordingly like any other federally regulated investment.

Perhaps the single best reason to consider a variable life insurance policy is to buy in to an investment program and afford family protection in the most easily administered environment. The difficulty is to predict the performance of the investment portion and thus to make a policy of this kind a conservative approach to wealth accumulation. Obviously, those who sell such policies will present their best features and gloss over the more difficult aspects requiring a due diligence review before commitment. In my opinion, as a vehicle for retirement planning and for catastrophe protection, the variable life insurance policy leaves a lot to be desired.

I only recommend this type of coverage to those with innate financial skills and experience who have a finger on the pulse of the markets. Such people have to spend a large part of their lives monitoring investment vehicles of this type. Undoubtedly, some investors in these instruments have made significant gains both in up and down markets but unless you already have the skills and can monitor your portfolio on a continuous basis, I would avoid variable life.