Variable Life Insurance

Variable Life Insurance refers to the type of insurance that lets its policy holders invest part of their premium in selected investment opportunities offered by the insurance company. This type of insurance has a cash value depending on the performance of the investment. The policy holder could place a specified percentage of their premium as investment.

If the investment performs well in the market, the cash value of variable life insurance increases. On the other hand, the failure of investment will mean the lowered cash value of the premium.

Clearly this type of insurance policy is not for risk takers. If the policy holder is not careful in selecting the right type of investment, the policy holder will end up with a lesser amount of premium than what was originally paid. This includes the reduction of cash benefits for the beneficiaries when the death of the policy holder occurs.

The policy holder may even end up with nothing if the investment fails to a considerable amount. The policy holder may pay more in order for the beneficiaries of the policy holder to have guaranteed cash in case of death.

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Variable Universal Life Insurance

Variable Universal Life Insurance (VUL) is a type of insurance that offers the same investment opportunity like Variable Life Insurance but offers additional flexibility of payment. The policy holder is assured of cash value since only a small part of the premium payments are used for investment.

The policy holder could also ask for a loan if the premium accumulates enough cash. Because of its ability to invest as well as accumulate cash value, this is often preferred by pensioners so that they will have some cash when they reach a certain age.

The downside of VUL lies on the flexibility of payment. The policy holders have to go through a lot of processes to change their premium payments. If they want to increase their premium, they have to provide proof that they are doing this in good conscience.

That means they do not have any sickness which could lead to death anytime. Those who plan to reduce their payments will have to pay a certain amount known as “surrender charge”. Just like in Variable Life, guaranteed cash is also not included unless the policy holder pays extra.

These life insurance policies offer a good tax break especially on the income for investments. When the performance of the invested premium is good, the cash value could easily increase because more investments could be used for better earning. The cash beneficiaries will also enjoy the benefits left by the policy holders, tax free.

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Note in Selecting the Right Type of Insurance

These insurance policies looked simple by definition, but the terms and conditions of these insurance policies are very complicated. Before selecting the right type of insurance ensure the insurance sales agent is state licensed. This ensures that you are working with a legal and recognized company. It is also important to consult an insurance broker to understand the terms and conditions completely.