Variable Life Insurance: When you Need Flexibility

Variable Life Insurance: When you Need Flexibility text overlaying image of a family covered by an umbrellaLooking for the ideal life insurance policy? While you’re researching all of these options, you might want to consider one that’s often overlooked: variable life insurance. This is a type of whole life insurance policy with a cash value determined by the amount of premiums paid, the policy’s fees, and the success of your investments. If you are interested in this kind of life insurance policy. You need to first understand how the cash value works, how the death benefit is paid out, and how flexible these policies are. 

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What is Variable Life Insurance?

Variable life insurance is a whole life policy that protects you for the rest of your life. As long as you keep your premium payments up to date. Every variable life insurance policy is made up of 3 components: the death benefits, the premium, and the cash value. The premiums are your monthly payments you make to keep your policy active. The premium goes toward the cost of insurance and fees then the rest goes toward your policy’s cash value. The cash value is a tax-deferred savings account where you can invest in different mutual funds. You have the freedom to keep an eye on your money and decide what gets invested where. 

 

If your cash value investments do well, you can use it to increase your death benefit. Or cash some of it out as you need it. It’s important to know that with investments there also comes the possibility that the investment won’t do well and you can lose money. When you die, the death benefit is the amount of money your beneficiaries get. 

Cash Value

The cash value of a variable life insurance policy works differently than the cash value of a whole or indexed universal life policy. Each variable life insurance policy comes with a proposal that tells you all the ways you can invest the money. Cash value investment choices work just like mutual funds. In that the money would be put into a certain set of investments. Like a money market account, bonds, or an index fund. With variable life insurance policies the insurance company may also offer a fixed interest investment alternative. This option is less risky but it also means your potential rewards are lower as well.

 

Variable life insurance gives you more ways to make money than other cash value life insurance plans, like whole life insurance, because you can choose how to invest your money. With that being said, variable life insurance plans rarely have a promised return rate. Because the performance of your investment market directly affects your cash value. Meaning in a good year your account will earn a healthy return on investment. But in a bad year you’re risking losing money. Additionally, most insurance companies will put a limit on how much your investment can earn, so you can’t make as much as you would with an independent savings investment.

Death Benefit

Most of the time, variable life insurance death benefits are paid out in one of two ways:

 

  • Level death benefit – This means the death benefit will be equal to the face value when you buy the plan.
  • Face amount plus cash value – This structure costs more, but your beneficiaries will get the face value of your death benefit as well as whatever is in your cash value account.

Some policies do offer other types of benefit structures like paying out the face value plus all of the premiums paid. But the two listed are the most popular. The death benefit is basically a goal based on an assumption about how well the cash value will do, like a 4% annual rate of return. If this rate of return holds, the insurer assumes the cash value will equal the face value of the insurance you pass away. However, if the cash value doesn’t go well, it can actually reduce your benefit based on the terms of your policy. No matter how your death benefit is set up, you should always check the policy terms to make sure the death benefit is guaranteed. If it is, make sure the expected value and the guaranteed value. 

Variable Universal Life Insurance

Variable universal life insurance works just like a regular variable life insurance policy. However it comes with extra flexibility. With variable universal policies you get the option to put your cash value towards your premium. Meaning if your investments do well and you have enough in your cash value account the policy will essentially pay for itself. When you pay your premium you can choose to pay more or less than the normal premium out of pocket. Giving these policies the nickname “flexible premium policies”. Even though most variable universal life insurance plans do have a minimum and maximum premium limit, you can pay any amount between the limits. So, you can:

 

  • Pay a portion – If your monthly payment is $500, you can choose to pay $250 out of pocket and use your cash value to pay the other half. Keep in mind that you can only do this if you have a certain amount saved in your cash value amount. 
  • Pay nothing – When your cash value has enough money in it, you can put it entirely towards your premium payment. 
  • Pay more – If you want to get to the pay nothing section quicker then early on you can put more than the premium amount in so the cash value and investments build up quickly. This is often the best choice if you have a large income and want to be able to stop paying fees in the future like when you retire.

Single Premium Variable Universal Life Insurance

We know the policy names are getting long, stick with us, we’ll explain. These plans let you buy coverage and add to the cash value of your policy in one payment. You buy coverage and make all of the minimum cash value contributions at the same time. It’s a hefty chunk of change. But in that single payment you’re fully funding your policy and automatically guaranteeing a large death benefit. Single-premium life insurance plans are also helpful because they let you pay for long-term care with policy loans or by adding a rider. Some single-premium life insurance policies let the policyholder withdraw money from the death benefit tax free to pay for living expenses.

 

Single-premium whole life and single-premium variable life are two of the most in-demand single-premium policies. How each program builds up a cash value is different. The first one has a set interest rate with no risk. The second option invests the cash value in carefully managed portfolios. Which comes with the risks and possible rewards of active investing.

Variable Life Insurance VS. Whole Life

Both variable and whole life insurance covers you for your whole life. But whole life insurance is less risky and pays out less. Whole life insurance has the following:

 

  • Fixed premiums – You pay the same premium every month.
  • Level death benefit – The death benefit will not lose value, it is guaranteed and remains the same.
  • Guaranteed returns – Your cash value will keep going up. And when the insurance matures, it will usually be guaranteed to be equal to the death benefit.
  • Fixed growth potential – There is no room for your investment returns to be higher. 

Variable life insurance plans can make the cash value grow much faster. And in some cases, the cash value can even be used to pay the premiums. These plans have more flexible premiums than whole life insurance policies.

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Variable Life Insurance VS. Term Life

If you have monetary obligations that aren’t likely to go away in the next 20 to 30 years. Term life insurance is likely a better choice than variable life insurance because it costs a lot less. For example, if you want to make sure your family can stay in your home if you die and you have a 15-year debt, term life insurance would be a better choice. In the same way, if you think you can save enough money over the next 20 years to take care of any future financial responsibilities, you should just buy term insurance as a backup. You would have to pay more for variable life insurance if you wanted a death payment for the rest of your life. 

Working With EZ

Even though this type of policy has some risks. It is the best way to invest in life insurance for the long run. Variable life insurance is a good choice for people who want a permanent life insurance policy that lets them build up cash value. Or people who want control over their investment options and the freedom to choose where to put their money. However, it is only for people who have enough money to pay the premiums for the rest of their lives. Even though there are more risks with this type of insurance, it could be worth it if you can afford it.

 

However, if you want cheaper coverage with more of a guarantee. You might be better off with a term life insurance policy because the premiums are cheaper. And you can convert it into a permanent life insurance policy. Working with an agent who specializes in life insurance is the best way to find the right policy for you and your needs. Everyone has their own needs, goals, and ways they can spend their money. At EZ.Insure, we know that you and your family want the best security. But we also know you have to stay within your means.

 

So, we will do everything we can to find you the best policy at the best price. We want to make it as easy as possible for you to do so and the best part is that everything we do is free! EZ will help you with everything. From answering all of your questions to helping you choose a policy and finish the registration process. We will also help you after your plan has been implemented. To get started, just type your zip code into the bar below or give us a call at 877-670-3560.

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The Different Types Of Life Insurance Policies

Shopping for a life insurance policy can feel a little bit overwhelming, because there are so many different types – but the upside is that, with so many options, you’re sure to find a policy that fits your needs and budget. If you’re not sure where to even begin, we have listed multiple types of life insurance policies, how they are different from each other, and what you can expect from each, in order to make the process a little easier and less stressful for you. 

Term Life Insurance

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Term life insurance is great because it offers you insurance for a duration of time, and there are different options to choose from.

Term life insurance is one of the most affordable types of life insurance available, but these policies only cover you for a limited period of time (or term), generally anywhere between 5 and 30 years. This type of life insurance is best for people who want coverage for large expenses such as mortgage payments, college tuition, and other debts, usually those who are younger or middle-aged and want to be able to replace income in case of an unexpected death. One of the great things about term life is you can convert your policy to permanent life insurance before it expires without having to go through medical underwriting again.

There are different types of term life insurance policies to choose from including:

  • Level term life insurance: Your premium stays the same for the entire term
  • Decreasing term life insurance: Your death benefit decreases as the debt amount decreases
  • Annual renewable term life insurance: Allows you to renew your term policy for one year at the end of the initial term
  • Return of Premium life insurance: All premiums paid will be refunded if the policyowner outlives the policy term

Whole Life Insurance

Unlike term life, a whole life insurance policy lasts for the entire life of the policyholder, as long as you keep up with the premiums payments. With this type of policy, premiums will remain the same throughout the life of the policy and cannot be raised for any reason. One of the best things about  this type of policy is that it has a cash value component, meaning your policy will build tax-deferred cash over time at a guaranteed rate of interest. 

Whole life insurance is best for people who want a longer policy with a cash value that they can borrow from. Be aware that you must undergo a medical exam to qualify for a whole life policy, and that these policies are more expensive than term life policies.

Universal Life Insurance

coins in a row growing, with the last one with a branch on top of the stack
Universal life insurance has a cash value that grows over time.

Universal life is similar to whole life insurance in that it is also a type of permanent life insurance with a cash value that grows over time. This type of policy will not only provide you with lifetime coverage, but the premiums are flexible, meaning that you can modify your monthly premium when needed, as well as increase or decrease your death benefit to accommodate different life events. 

Premiums for this type of life insurance policy are generally higher than those for term life, because of the above features. It is best for people who prefer affordable permanent life insurance and want the ability to accumulate cash over time. With this type of policy you will need to undergo a medical exam, as well.

Variable Life Insurance

Variable life is a type of universal life insurance that also builds up cash value over time, but instead of earning a fixed rate of interest determined by your insurance company, the interest it earns is based on the performance of an investment account. You can withdraw cash from the policy through policy loans that are considered tax-exempt, but you can lose your cash value if the market performs poorly. This type of life insurance is best for people who are looking for permanent life insurance that builds up cash that can be used as a tax-exempt income. Premiums are based on your medical history, so you will have to undergo a medical exam. 

Simplified Issue Life Insurance

With this kind of life insurance policy, you do not have to undergo a medical exam, meaning policies will typically be more expensive because the insurer is taking a risk by insuring you without knowledge of your medical history. On the other hand, though, you don’t have to worry about being approved, and you will be able to get a policy in a matter of days as opposed to weeks or months. This type of policy is best for people who need coverage quickly, as well as for those who have pre-existing medical conditions and are afraid they might get denied any other type of coverage.

Guaranteed Issue Life Insurance

Like simplified issue life insurance, guaranteed issue life insurance is a whole life policy that will provide insurance without requiring a medical exam. As long as you are within the eligible age requirements, you can purchase one of these policies, but it will cost more than traditional life insurance because of the risk the insurer is taking, and will generally only provide $25,000 to $30,000 in coverage. 

hourglass with blue sand in it dripping down
Guaranteed life insurance has a 2 year waiting period before the death benefit is paid.

There is one other caveat to this type of policy: there is a two-year waiting period before the full death benefit is payable to the beneficiary. This means that, if the policy owner dies within 2 years, the insurance company will only pay out 110% of premiums paid (as long as the insured dies from natural causes), instead of the agreed-upon death benefit. Guaranteed issue life is best for people who cannot qualify medically for traditional life insurance, but would like the opportunity to cover their loved ones when they are gone.

Final Expense Insurance

Final expense insurance is generally bought to cover funeral expenses, burial expenses, and any other medical debts you may have. There is no medical exam required, and it is relatively affordable, but the death benefits are usually capped at $35,000.

Joint Life Insurance

Joint life insurance will provide coverage for you and your spouse. You can choose from a  universal or whole life policy, but the death benefit is usually not paid out until both policy holders have passed away. A lot of couples will choose this option because it is cheaper than purchasing two separate policies, and the underwriting and rates are based on the younger and healthier partner.

Your family has financial obligations that will not go away when you are gone; they will need your help more than ever with their expenses, and the last thing you want them to worry about is money while they are grieving. There are many great affordable life insurance options to choose from that will provide enough money for your family, for a low monthly price. The best way to find the right life insurance policy for you and your specific needs is by working with an agent who specializes in life insurance. We have provided the top life insurance companies in the nation below; each offers hassle-free assistance and the most competitive rates. Always check multiple sites to make sure you have bargaining power and know the advantages of each company. Make sure a hard time isn’t made harder by a financial burden, check life insurance rates today.