Variable life insurance is a permanent life insurance product that allows policyholders to invest their cash value across a selection of stocks, mutual funds, and bonds. As a permanent policy, variable life insurance covers you throughout your lifetime, so you can take solace in knowing your loved ones have a financial safety net that can cover your end-of-life expenses.

Most permanent life insurance policies accumulate cash value over time; variable life offers policyholders the freedom to invest that cash value. High-performing investments could increase your cash value substantially. Fidelity Life doesn’t offer this particular type of policy but can define variable life insurance, lend some insight into how it works, and offer alternatives to consider.

How does variable life insurance work?

Variable life insurance allows you to invest your policy’s cash value across various investment assets at the discretion of your insurance company. After you purchase your policy and identify stocks, bonds, or mutual funds, you make a substantial initial premium payment. Then, the insurer distributes the extra portion of your payment among your investment choices. Those investments determine the policy’s cash value. Once your policy accumulates some cash value, you can take out a loan against it, withdraw funds, or if you have a face amount plus cash value policy, leave it untouched to potentially increase the death benefit.

For example, suppose you invest $50,000 into your variable life insurance policy’s cash value. You may put $20,000 into a fixed account with a 4% interest rate and $30,000 into a mutual fund with a variable return rate. If the mutual fund ends up having an 8% return, a year later, your policy cash value will reach $53,200 ($20,800 from the fixed account and $32,400 from the mutual fund).

While policyholders control investments, your options are limited by your insurance provider’s portfolio. And while variable life policies’ cash value is not subject to income taxes, it is vulnerable to volatility in the market.

A fixed portion of your premium payment also goes toward your policy’s death benefit. Variable life insurance policies typically have a guaranteed minimum death benefit that you can supplement through the policy’s cash value.

Is variable life the same as variable universal life insurance?

Variable life insurance and variable universal life insurance are two types of permanent policies involving active investment. Their death benefits and premiums, however, set them apart.

Variable life insurance typically provides a guaranteed minimum death benefit and fixed premiums. If your investments perform well, the increased cash value may bolster the death benefit, if your policy type is face amount plus cash value. However, it will never fall below the death benefit minimum. Variable universal policies don’t have a fixed death benefit or fixed premiums. You can adjust both as needed throughout the life of the policy. However, the policy could lapse if you lower your premiums too much.

Risks of variable life insurance policies

Variable life insurance policies come with higher risks. Depending on changes in the market, you could lose the money you invest into the policy’s cash value, as it doesn’t usually come with built-in protections for the policyholder.

Cost may be the biggest drawback of variable life insurance. In addition to relatively high premiums, these policies usually come with more fees than almost any other type of life insurance: investment fees, administrative fees, sales fees, surrender charges, withdrawal charges, and more. If your investments don’t perform as highly as you hope, you may end up with around the same cash value after fees as you would have with whole life insurance.

Does variable life insurance make sense for you?

People with high incomes or substantial assets may find a useful investment opportunity in variable life insurance. Unless you prioritize variable life’s tax-deferred investment aspect and active management, other types of life insurance policies might bring you more value.

Permanent policies typically cost more than term life policies, and variable life often charges high additional fees. Families on a budget can get the same death benefit at a much lower cost through term life insurance.

If you’d like to ensure your kids have some extra security as they grow up or that your spouse can continue paying for your mortgage without your income, a term life policy could be right for you. If you’re looking for a life insurance policy that could cover end-of-life expenses, support lifelong dependents, or help you leave a financial legacy, you may prefer other permanent policies with a fixed growth cash value component.

Alternatives to variable life insurance

If variable life doesn’t seem like the best fit for you, don’t worry. You have many options to meet your family’s needs, including term and whole life insurance.

Term life insurance

With a term life insurance policy, you can tailor your coverage to your life. Term life policies last for a fixed period that you choose when you apply, typically between 10 and 30 years. Your beneficiaries receive a death benefit if you pass away within that period. Term policies don’t have a cash value component, so they typically have the most affordable rates.

With Fidelity Life’s RAPIDecision® Life term policies, adults between 18 and 65 could receive between $50,000 and $2 million in coverage the same day you apply. Older adults may consider RAPIDecision® Senior Life Term insurance for coverage up to $150,000 and quick approval, often without a medical exam.

Whole life insurance

For coverage that will last your lifetime and accumulate cash value, you may want to consider RAPIDecision® Senior Whole Life Insurance. These policies offer up to $150,000 in permanent coverage for adults between 50 and 85. If anyone depends on your income indefinitely, a whole life policy can help you give them the ongoing financial support they need. Like variable life, whole life insurance accumulates cash value. Unlike variable life, it does so at a fixed rate, unaffected by market changes. You can take out a loan against that cash value to cover sudden expenses.

Let Fidelity Life help you find the right life insurance policy

While Fidelity Life does not offer variable life policies, we can help you explore your options and find a fit for your family. The best life insurance for you provides you and your loved ones with the coverage you need without breaking your budget. You can call and speak with a licensed life insurance agent today to learn more about your life insurance options and discuss potential policies.

FAQs about variable life insurance policies

Can you cash out a variable life insurance policy?

Yes, you can cash out a variable life insurance policy for a fee. If you cash out or surrender your policy to your insurer, you receive the policy’s cash value. However, you’re vulnerable to surrender costs.

Is variable life the same as whole life?

No, variable life and whole life insurance aren’t the same. While variable and whole life are both permanent policies that accumulate cash value, variable life policyholders can choose how to invest that cash value. While whole life insurance policies have a cash value with a fixed growth rate, variable life insurance cash value depends on the performance of your investments.

Is variable life insurance a good investment?

It depends. If you have enough funds to afford fees and potential losses without sacrificing your financial well-being, a variable life insurance policy can help you earn more. On the other hand, if you’re working with a budget, variable life may not be the best use of your funds.