Variable life insurance is the most flexible type of life insurance. Variable life insurance is based on the main idea that you manage your own investments instead of letting the insurance company do it for you. This lets you choose how much risk you want to take with your life insurance fund and gives you a chance to make a lot of money on the cash-in value of your life insurance policy.
How does life insurance that changes work?
All types of life insurance are ways to invest money. Standard life insurance policies with no cash value, like term life insurance, put the insurance premiums into very low-risk funds that are usually required to pay a certain amount of interest. This gives the life insurance company confidence that it will get a real return, which is then passed on to the policyholder in the form of a guaranteed lump sum payment in the event of death or a terminal illness.
Variable life insurance is different from regular life insurance because the policyholder is in charge of the investments instead of the insurance company. The life insurance company may let the policyholder invest a portion of the fund or, in some cases, the whole fund. The fine print of variable life policies says that the life insurance company is not responsible for how the policyholder's investments do. So, if the investments don't do well, the policyholder knows that when the insurance is redeemed, there will be little or no cash surrender value.
Should you get variable life insurance?
Before getting variable life insurance, you should give it a lot of thought because it comes with a lot of risk. In an ideal world, only experienced investors who know their way around the stock market should buy variable life insurance. If you've never put money into the stock market before, you probably don't need a variable life policy.
But if you are confident in your ability to invest, you can benefit from a variable life policy in the following ways...
- Variable life policy potential:
With a variable life policy, it is possible to earn much more interest than with a standard term life insurance policy. With a standard policy, you might pay a small premium each month for a payout of GBP100,000 if you die. But with a variable life policy, if you invest well, that GBP100,000 could be worth GBP500,000 or more when you cash it in.
- Tax advantages:
Variable life policies don't have to pay taxes on their cash surrender values until they are cashed in. Also, gains made via variable life policies are not subject to capital gains tax (CGT).
