What Is Variable Life? Is It Right for You & Your Family ?
Is Variable Life Insurance Appropriate for You?
When considering life insurance options, weighing all factors before deciding is crucial. One such option is variable life insurance. This product combines protection with an investment component, which may appeal to individuals who are comfortable with market risk and are pursuing long-term financial goals. However, variable life insurance is not appropriate for all investors. Here's what to know before buying a variable life insurance policy.
What is variable life insurance?
Variable life insurance includes a death benefit, a cash value account, and investment subaccounts tied to market performance, with gains or losses depending on market conditions. Policyholders assume all investment risk.
Unlike other life insurance products, such as whole or universal life insurance, the cash value of variable life insurance is invested in a range of market-sensitive assets, including bonds, equities, or money market instruments.
Balancing risk and reward
A key feature of variable life insurance is the opportunity—though not a guarantee—for the cash value to grow over time through investment performance. However, this growth potential is balanced with an equivalent level of risk.
• Risk—If the investments do not perform well, the policy's value can decrease, reducing the cash value and the death benefit.
• Reward—If the policy's investments perform well, the policy's cash value may grow, which can significantly increase the death benefit.
There's no guaranteed return with variable life insurance. If the market performs poorly, the policy’s cash value may decline, and the owner may incur losses similar to those experienced in direct market investments. On the other hand, the policy could have significant cash value growth if the market does well.
Is variable life insurance appropriate for you?
Determining the suitability of variable life insurance for your situation can depend on several factors.
Financial situation— Consider variable life insurance if you have maximized other retirement savings options and are seeking additional tax-advantaged ways to save for future goals.
Risk tolerance— If you are comfortable taking on investment risk and have a longer-term perspective, variable life insurance may be an appropriate fit. Be prepared for potential losses as well as gains.
Long-term goals— Variable life insurance can be an effective tool for building wealth over the long term. It can also serve as an estate planning tool, providing heirs with a death benefit typically free from income tax.
Variable life insurance is a complex financial product that combines life insurance protection with investment opportunities. Consulting with a financial or insurance professional can help you understand how variable life insurance works. It's not for everyone; consider your risk tolerance and long-term goals before purchasing.
Contact Haley or Seth with the Tehan Insurance Agency to learn more and see about your options. Email us at tehaninsurance@gmail.com or call (501) 398-5688.
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