Variable life insurance is one of the permanent types of life insurance. Like other permanent life insurance plans, variable life insurance contains an investment aspect, along with the benefits of a life insurance policy. Supplemental life insurance is simply an addition to an existing policy to increase the death benefit.
Identification
Variable life insurance is different than other permanent life insurance types, as the policy holder has much more input in how the investment aspect is handled. Variable life policy holders may invest in stocks, bonds, money market funds and other higher risk plans that other types of life insurance plans typically stay away from.
Function
Supplemental life insurance is a bit like term life insurance in that it only pays out if the insured person dies during the life of the policy, while variable life is designed to pay money in the event of death and to provide income through the investment aspect. Unlike some other permanent life insurance varieties, variable life does not have a guaranteed minimum cash value due to the increased risk associated with the invest aspect.
Features
Supplemental life insurance is frequently offered to group life insurance policy holders, such as would be found if an employer offered life insurance as a benefit. The amount of life insurance provided by the employer may not be sufficient to meet the needs of an individual. In such a case it would make sense to purchase supplemental life insurance. Many companies limit the amount of supplemental coverage that may be purchased in correlation to the amount of the original life insurance policy.
Significance
Because variable life insurance is more risk-oriented than other forms of life insurance, there is no guaranteed minimum guaranteed death benefit, unless the policy holder wants to pay additional fees. Likewise, if the policy holder's investment choices do well, the cash value and the death benefit of the policy will increase. Policy holders may borrow against the cash value of their account, but the loan amount may be limited due to the possibility of the fluctuation of the cash value.
Benefits
The investment portion of a variable life insurance policy will accumulated on a tax-deferred basis. Policy holders may elect to use the growth in the cash value of their accounts to pay their premiums, which will reduce out-of-pocket payments or eliminate them.
Considerations
Variable life insurance is not for everyone, but can be a good choice for seasoned investors who are comfortable making their own financial decisions. Solid investment choices can dramatically increase the cash value aspect of a policy. Likewise, poor investments will decrease the value of the policy.
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