Variable Life

Life Insurance Comparison Chart Variable policies work very similarly to universal policies. The largest difference is that the cash value is invested at the policyholder’s instruction.

Policy Length

Variable life policies last for the insured’s lifetime or until the maturity date so long as premiums are paid.

The maturity date of a permanent policy is when the cash value (we’ll get into that below) equals the death benefit. The maturity date is set when the policy is issued. Policies issued prior to 2009 can have a maturity date as early as insured’s age 90. Policies issued after 2009 are usually set to mature at insured’s age 100 or 121. How maturity is handled will differ between insurance companies. Some companies will force surrender of the policy at maturity and pay out the cash value. In other cases, the maturity date may be extended and the cash value will not pay out until the death of the insured.

Cash Value

Variable policies have a cash value just like whole and universal policies. A portion of the premium is still put towards the cash value. The cash value can be utilized to pay premiums. What sets variable policies apart from the rest is that the cash value is directly invested in sub-accounts. Sub-accounts are only available with variable insurance policies but act similarly to mutual funds. The policyholder is given the ability to choose which sub-accounts to invest in. Some policies may have a guaranteed rate of return or none at all. If there is no guaranteed rate of return, there is no protection for the cash value if the selected investments perform poorly allowing the cash value to drop. Some policies may also have a cap rate of return, hindering the growth potential if the investments perform well.

Another key difference with variable policies, is that some of them have the ability to pay out the cash value in addition to the death benefit if/when the insured passes away. This feature adds to the cost of the policy but may be appealing to those who want to ensure their beneficiary will receive any potentially available cash value.

Premiums

Variable policies also boast flexible premiums (to an extent). Like universal policies, they require a minimum premium to remain in-force. However, there is usually also a maximum premium. Additional premium can still be paid so long as it does not exceed the maximum. As mentioned above, once the cash value has accumulated enough, it can be utilized to pay the premiums allowing the policyholder to reduce or stop paying premiums entirely. In this case, it is important for policyholders to be aware of their cash value and premiums even if they are not paying anything out-of-pocket. If the cash value is in danger of not being able to cover the premiums, policyholders will be instructed to pay additional premium so that the policy doesn’t lapse.

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