Variable Life Insurance: A Prospectus

A detailed prospectus to everything you need to know about Variable Life Insurance.

You’ve come to the correct spot if you’ve been looking for a particular insurance plan that complements your financial objectives and investing desires.  In life insurance, where security and future planning is paramount, variable life insurance emerges as a powerful option, offering a fusion of guaranteed benefits and strategic investment opportunities. At the same time, traditional life insurance policies provide a safety net and a predictable payout, variable life insurance steps onto the scene with a twist.

Imagine an approach that secures your loved ones’ futures and empowers you to make investment decisions tailored to your risk appetite and growth objectives. It is precisely where variable life insurance shines. In this guide, we’ll delve into the depths of variable life insurance, uncovering its intricacies, pros, cons, and potential for financial prosperity. We’ll explore how this unique policy combines the stability of a guaranteed death benefit with the excitement of investment accounts, allowing you to navigate the world of financial markets while safeguarding your family’s future.

Your journey toward financial security and growth begins here. Armed with knowledge, insights, and a roadmap to navigate the intricacies of variable life insurance, you’re poised to make informed decisions that shape your future. So, let’s dive in and uncover the prospects that variable life insurance holds for you.

What is Variable Life Insurance?

Variable Life Insurance is a permanent policy combining a guaranteed death benefit with an investment component. Unlike traditional life insurance, where the cash value accumulates at a fixed rate, variable life insurance allows policyholders to invest a portion of their premiums into various investment options, such as stocks, bonds, and mutual funds, referred to as subaccounts. The performance of these subaccounts directly impacts the policy’s cash value and growth potential.

With more flexibility and control over their investments thanks to variable life insurance, policyholders may increase returns based on market performance. The greater risk associated with this investment component derives from the fact that the cash value may change depending on how well the selected investment alternatives perform. Policyholders must actively manage their investment allocations to optimize potential growth while considering the associated risks.

Image Source: CAKnowledge
Image Source: CAKnowledge

The policyholder’s beneficiaries are entitled to a guaranteed death benefit, typically determined by the initial policy terms and the investment performance. Variable life insurance offers financial protection for loved ones in the event of the policyholder’s death and the opportunity for potential wealth accumulation through investment participation. It is important to note that variable life insurance policies are subject to regulatory oversight and may require policyholders to meet certain licensing and qualification criteria for investment decisions.

For instance, Variable Life Insurance is a policy where you’re insured and an investor. Imagine you’re saving for your child’s education. With Variable Life Insurance, you contribute to a fund that invests in stocks or bonds. If investments do well, your fund grows, benefiting your child’s future. However, if the market drops, your fund might shrink. It’s like planting a tree: it could thrive and provide shade, but lousy weather could stunt its growth. Variable Life Insurance offers potential gains, but like any investment, it carries risks. So, just as you’d monitor your growing tree, you’d watch your policy’s investments.

How does Variable Life Insurance work?

Variable Life Insurance is a dual-purpose policy, merging life coverage with investment potential. Policyholders pay premiums, part of which goes toward an investment account. This invested amount is directed into various assets, such as mutual funds or stocks. The policy’s cash value fluctuates based on investment performance, affecting its overall value. Premium payments, fees, and investment returns collectively influence the account’s growth.

Variable life insurance serves as a life coverage option similar to other policies, providing a death benefit that can surpass your premium payments. Under a variable life insurance policy, you make premium payments into an account. The amount directed to the report may be lower due to deducted fees. This invested sum is then diversified into various investment choices, often mutual funds, which you can personally select.

Additionally, you can allocate some of your premiums to a fixed account. Unlike mutual funds, the revised version offers a consistent interest rate, often with a guaranteed minimum of 3% annually. The value of your account is subject to change, influenced by your premium contributions, policy fees, expenses, and the performance of your chosen investments.

  • Consider investing $100,000 in a variable life insurance policy as an illustration. You invest $50,000 each to bond and stock funds, split 50/50. Your account would be worth $107,500 ($55,000 in stacks and $52,500 in bonds) after fees if the stock fund rose 10% and the bond fund rose 5% over a year.

Your policy may necessitate fixed premium payments or allow flexibility if they cover policy fees and expenses. Some guidelines safeguard against lapses due to insufficient policy value caused by costs, poor investment performance, or loans. Paying higher premiums can lead to lower policy fees and expenses.

Your level of risk, determined by the disparity between policy face amount and cash value, affects specific costs. In essence, variable life insurance offers investment potential alongside life coverage, with your cash value’s growth dependent on your choices and market performance.

To Sell Variable Life Insurance Policies, an Agent Must Receive

Three things:

  1. A securities license
  2. A life insurance license
  3. A FINRA (Financial Industry Regulatory Authority) registration
Image Source: Bankrate
Image Source: Bankrate

A variable life insurance agent must be licensed and appointed as a life and unstable contract agent to deliver professional services and guidance. It is essential for insurance companies to expertly deal with different clients and their needs and design the most suitable policy for them.

People must also ensure that their agent is licensed and legally allowed to offer insurance services; fraudulent activity is widespread, and to avoid such scams, it is essential to do a full background check on agents and companies.

Variable Life Insurance Pros and Cons

When people can manage their investment component according to their needs and decide when to allocate what amount of money, this freedom makes them opt for VUL insurance.  For every person, the reason for signing in on the policy may differ, and a definitive list of pros and cons will determine whether the approach works for you. Now that we’re somewhat clear on what variable life insurance is, let’s evaluate the possible pros and cons of the policy. These are the same as inconsistent universal life insurance policies, as discussed further in this article.

Image Source: BEACON
Image Source: BEACON


Variable Universal Life Insurance offers various pros and features:

  • Flexible financial solutions: You can access funds through loans or withdrawals from the policy’s cash value, providing financial flexibility when needed.
  • Tax-advantaged growth: The cash value grows on a tax-deferred basis, meaning you can enjoy potential growth without immediate tax implications. Taxes only apply to withdrawn funds from the cash value, with only the portion attributable to investment gains being taxed.
  • Tailored usage of funds: You can use the started cash value for various purposes, from enhancing retirement income to indulging in personal luxuries.
  • Enhanced investment potential: Variable universal life insurance offers investment options that yield higher cash value growth than other life insurance types.
  • Diversification opportunity: The policy allows you to diversify your investment strategy, contributing to a well-rounded financial portfolio.
  • Tax-free death benefit: Upon passing, the death benefit is paid out to your beneficiaries without incurring taxes, providing them with a tax-free financial resource.
  • Valuable riders: Additional policy riders, such as those covering chronic illness, critical illness, or terminal illness, can be added to your policy. These riders permit you to access some of your death benefits while alive under specific conditions.

Variable universal life insurance combines financial flexibility, tax advantages, investment potential, and tailored benefits to offer a comprehensive approach to securing your financial future.


Variable Universal Life Insurance comes with specific considerations to be aware of:

  • Investment risk: In underperforming investments, including the principal, you might experience losses. Poor investment performance or withdrawals can diminish the policy’s cash value, potentially leading to a lapse. Addressing this may require unexpected additional premium payments or fees for policy reinstatement.
  • Impact of insurer choice: Opting for an insurer with high monthly fees can hinder cash value growth, as a more significant portion of your premium is directed towards costs. Comparing policies from different providers is crucial to making an informed decision.
  • Associated investment fees: Your chosen investment options within the policy may come with costs that can affect your overall returns. Tax
  • Implications of withdrawals and loans: Unpaid withdrawals or loans from the policy’s cash value are subject to income tax on the portion derived from investment gains.
  • Transfer limitations: There might be restrictions on the number of permitted transfers between investment options annually, often around 25.
  • Variable death benefit: The death benefit amount could decrease in poor investment performance. However, inconsistent life policies usually assure a minimum guaranteed death benefit amount.

Considering and weighing these aspects against the benefits is essential when evaluating Variable Universal Life Insurance options.

Can you cash out a Variable Life Insurance Policy?

Cashing out your variable life insurance policy is possible but only through withdrawals. You can withdraw all or a particular portion of your cash value, which is usually tax-deferred. However, if the cash value you’re starting exceeds the total you’ve been paid in premiums, then tax is applicable.

Image Source: Spotlight Insurance Agency
Image Source: Spotlight Insurance Agency

Moreover, if you’re starting in the initial years of the policy, you may also have to pay a surrender fee that your insurance company may charge you. Usually, the time to make that cash value mature is almost 10-15 years, and you may not be liable to pay a surrender fee after that. It, of course, varies from company to company and their policy.

What advantage does an Equity Indexed Life Insurance Policy have over a Variable Life Policy?

It is a prevalent question that most people ask. Luckily we have an answer. But first, let’s be clear on what an equity-indexed life insurance policy is.

A complex form of permanent life insurance policy, an indexed life insurance policy is one where cash accumulation is tied to the stock market index.

Where a variable life insurance policy allows policyholders to invest portions of their cash value into an investment account, an equity-indexed life insurance policy only allows them to invest their money in the equity account.

It pays interest according to the market index fluctuation without actually investing the money. It does sound confusing because an indexed equity life insurance policy is a little complicated. Now back to the main question: what advantage does an equity-indexed life insurance policy have over a variable life policy?

  1. The cash value can be borrowed against a minimum guaranteed rate of return
  2. Minimum guaranteed fixed interest rate.

There’s your answer; it makes sense now, right?

Variable Life Insurance Companies

Here is a list of all the authentic variable life insurance companies you should choose for your insurance plans.

  1. Variable Annuity Life Insurance Company (VALIC)
  2. Equitable Variable Life Insurance Company
  3. Prudential Variable Life Insurance
  4. Hartford Universal Life Insurance
  5. John Hancock Variable Life Insurance
 Image Source: The Family Enterprise
Image Source: The Family Enterprise

Variable Universal Life Insurance

Sitting under a giant umbrella of variable life insurance, one primary type is variable universal life insurance, a definitive variant of the said policy.

Let’s go step by step.

What is Variable Universal Life Insurance?

A variable universal life (VUL) insurance is a kind of permanent life insurance that doesn’t expire and gives the policyholder lifelong protection. Along with having a guaranteed death benefit and a cash value component, a VUL policy ALSO has an investment component.

The policyholder can allocate all- or part of their cash value in the investment account and monitor the allocation over time. They can also secure and decide their death payout in a VUL policy. But depending on the market, the cash value of a variable life insurance policy can fluctuate up and down.

What is Group Variable Universal Life Insurance?

A Group Variable Universal Life (GVUL) combines two significant parts: protection and savings! The premiums you pay cover the cost of your life insurance plan. This plan is liable to employees of an organization where they are offered insurance. It is relatively cheaper for organizations to opt for collective plans for their employees. Employees name their beneficiaries at the start of the program who receive the death payout when they die, provided all premiums were paid on time and the policy is still in force.

Your beneficiaries receive lifetime protection in this life insurance policy; the investment component can serve as savings for you. So basically, in one approach, you get to protect your children’s future through the death benefit AND use the savings to cover expenses during your life. The maximum age for qualifying for a GVUL policy is the age of 75. In some individual cases, you may not even be asked to give a medical exam.

Variable Universal Life Insurance Calculator

If you’re looking for a VUL policy, it is essential to have at least an idea of your quotes. With that said, you don’t need to go to an insurance company for rates- YET. You can easily find an estimate of quotes online. This table shows sample monthly premium rates for a healthy male and female. Assuming they’re looking for a lifelong variable universal life insurance policy coverage of $250,000.

Image Source: WiserAdvisor
Image Source: WiserAdvisor
Age Male Female
25 – 35 $100 – $140 $78 – $120
35 – 45 $140 – $221 $120 – $201
45 – 55 $221 – $364 $201 – $340
55 – 65 $364 – $659 $340 – $571

Note: Sample quotes have been extracted online, courtesy of SmartAsset. Actual premiums rates are most likely to differ based on the individual’s health and the nature of the policy.

Variable Annuity Life Insurance

The purpose of a variable annuity life insurance policy ensures you never outlive your income. Wait, is that even possible? When you put your money in a mutual fund, it is expected to grow, and the gains are tax-free; well, that’s until you decide to withdraw your cash value. The good thing is that the value of improvements can grow at a very steady rate and outgrow the initial investment level. When a person retires, they still have some monthly income paid to them as decided at the start of the policy. The Variable Annuity Life Insurance Company (VALIC) is famous for specializing mainly in variable annuity life insurance, retirement plans, and tax-deferred investment plans.

Pros and Cons of Variable Annuity Life Insurance


  • Tax-deferred
  • It gives you a chance to select investment options
  • An exchange option is available between subaccounts
  • Lifetime income
  • No additional cost
  • Spouse and beneficiary protection


  • Poor investment performance will decline the value of the annuity
  • Policy surrendering may cost you additional money
  • Relatively higher fees than that of mutual funds

Variable Life Insurance vs. Whole Life

Insurance is a permanent life insurance policy with a guaranteed death payout and an accumulated cash value that tends to grow over time.

Both variable and whole life insurance are permanent policies offering lifelong coverage to policyholders. The only difference between the two is that variable life insurance provides an investment component that allows policyholders to control their investments. The insurance coverage in a variable life insurance policy may vary based on the value of your investments and the market.

Both have a guaranteed death payout that does NOT decrease as long as the minimum amount of premiums is regularly paid.

Image Source: Wealth Nation
Image Source: Wealth Nation

If you’re only interested in having a guaranteed death benefit that your beneficiaries can use if you die or are only looking to use the cash value for more extraordinary expenses shortly, you should go for whole life insurance.

A variable life insurance policy will allow you to reinvest your money into the sub account or mutual funds or even to get ahead of paying premiums! It is only suitable for people looking to invest and those who can bear fluctuating market risks.

Variable Appreciable Life Insurance

It is a form of whole-life insurance with the option of investing your money in mutual funds. Of course, this policy has many risks, including decreasing payout due to market fluctuation. However, this policy may suit people looking to invest portions of their variable life insurance cash value into mutual funds.

Variable Second-To-Die Life Insurance

Variable second-to-die life insurance, or variable survivorship life insurance, is a joint insurance policy that covers two people- usually husband and wife.

The death benefit is transferred to beneficiaries only when both insured people die; if one dies, there is no payout. And until both beneficiaries die, premiums have to be paid. If one policyholder dies, their spouse will have to continue paying premiums. The most significant advantage of this type of policy is that it is cheaper to insure two people under one policy rather than insuring them separately. This policy also allows policyholders to put their money in a separate account to pay off premiums, and its performance is solely based on how the market operates.

The Path Forward

Opting for an insurance policy has become necessary, having to secure financial conditions for the near future and money to reinvest for the good of your family. Many people think on this path now, aiming for zero economic tension for themselves and their families decades later. Many choose variable life insurance policies because of the investment component and the freedom to control money. The cash is then used through withdrawals that people may need to pay off massive amounts during their life or to pay off premiums. Of course, the market plays a vital role in investments because poor performance decreases cash value and death benefit. It is essential to have a trusted advisor who can guide you on the different policies and suggest which one suits you best.

Costs in variable life insurance: fees and expenses.

When venturing into variable life insurance, it’s vital to grasp the fees and expenses accompanying such policies. Familiarizing yourself with these charges will empower you to make informed decisions about your investment. These fees and costs have the potential to impact your policy’s value and may necessitate additional premium contributions to maintain its vitality. Let’s delve into the different components you should be aware of:

Image Source: McKenzie Lake Lawyers
Image Source: McKenzie Lake Lawyers
  • Sales fees: Sales fees are levied on your premium payments as a percentage of the amount invested. These fees, designed to offset the insurance company’s sales-related costs, diminish the portion of your premium contributing to the policy.
  • Surrender charge: A surrender charge may apply if you decide to surrender your policy or withdraw in its early years. This charge compensates the insurance company for sales expenses that would not otherwise be recovered in the event of an earlier policy termination. Reviewing the duration of the surrender charge period when evaluating a policy is imperative.
  • Mortality and expense (M&E) risk fees: Ongoing M&E risk fees are calculated as a percentage of your account value. These fees safeguard the insurance company against risks associated with the policy, encompassing scenarios like unexpected early policyholder death, higher-than-anticipated administrative and sales costs, and discrepancies between policyholder behavior and the company’s projections.
  • Cost of insurance: Tailored to each insured individual, this fee fluctuates based on age, gender, health, and the death benefit amount. It compensates the insurance company for providing the death benefit coverage.
  • Administration fees: These ongoing fees underwrite the insurance company’s expenses related to policy issuance, administration, claims processing, record maintenance, and communication with policyholders. They can be presented as a flat account maintenance fee or a percentage of your account value.
  • Loan interest: If your policy allows loans, interest will be charged on the outstanding loan amount. This interest accrues on any borrowed funds.
  • Underlying fund expenses: As a policyholder, you’ll indirectly bear the ongoing fees and costs associated with the mutual funds that serve as the underlying investment options for your variable life insurance. These charges are in addition to those imposed by the insurance company and are integrated into the investment options’ performance.
  • Fees and expenses for optional features: Additional features offered by policies often come with supplementary costs. The amount of these fees can vary based on the specific features provided or the individual insured’s circumstances.
  • Transaction fees: Certain services may attract transaction fees, such as transferring funds between investment options, making partial withdrawals, adjusting the face amount, or requesting additional reports (such as policy illustrations).
  • Other charges: Beyond the listed fees, other expenses might apply. Consulting your financial professional is essential to gain a complete understanding of all potential charges.

To comprehend the complete fee structure, refer to the prospectus for the variable life insurance policy you’re considering. With this knowledge, you can make well-informed decisions aligning with your financial goals and aspirations.

Switching from one variable life insurance policy to another

It’s essential to consider the following elements when considering replacing a life insurance policy:

  • The price of your insurance is expected to increase as you age, increasing the cost of your new policy.
  • As you get older, your insurance will probably go up, making your insurance more expensive. It’s crucial to meticulously compare costs between your existing and prospective new policies.
  • Early years of policy ownership often involve higher surrender charges. Opting for a policy exchange could subject you to surrender charges on your current policy and initiate a new surrender charge period for the replacement policy.
  • Thoroughly assess and compare the features of the old and new policies to determine which aligns better with your requirements.
  • Be mindful of the potential tax implications related to exchange policies.
  • To avoid a lapse in your insurance coverage, refrain from canceling your existing policy until the new policy is officially in effect.
  • Request a policy illustration from your financial advisor, comparing your current and potential new policies.

Consider the financial incentives your financial advisor may have when suggesting a policy exchange.


In financial planning and security, variable life insurance offers a unique blend of guaranteed benefits and strategic investment opportunities. As you journey through this comprehensive guide, you’ve uncovered the intricacies, advantages, and potential drawbacks of variable life insurance. This versatile policy empowers you to shape your financial future by merging the stability of a guaranteed death benefit with the dynamism of investment accounts.

Variable life insurance allows you to steer your investments, optimizing potential growth in sync with your risk appetite and aspirations. It’s a path that intertwines protection for your loved ones’ futures with the exhilarating pursuit of financial gain. Through meticulous analysis and comparison, you can align your policy with your individual goals, ensuring your financial landscape evolves in harmony with your aspirations.

Your financial future awaits, ready to be shaped by your informed choices and thoughtful strategies. As you step forward, guided by the principles of variable life insurance, may your path be one of prosperity, growth, and a lasting legacy.

John Otero

John Otero

John Otero is an industry practitioner with more than 15 years of experience in the insurance industry. He has held various senior management roles both in the insurance companies and insurance brokers during this span of time. He began his insurance career in 2004 as an office assistant at an agency in her hometown of Duluth, MN. He got licensed as a producer while working at that agency and progressed to serve as an office manager. Working in the agency is how he fell in love with the industry. He saw firsthand the good that insurance consumers experienced by having the proper protection. John has diverse experience in corporate & consumer insurance services, across a range of vocations. His specialties include Major Corporate risk management and insurance programs, and Financial Lines He has been instrumental in making his firm as one of the leading organizations in the country in generating sustainable rapid growth of the company while maintaining service excellence to clients.

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