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Variable life insurance

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Variable life insurance policy is also referred sometimes as variable universal life insurance or variable appreciable life insurance. It has a permanent nature similar to other life insurance policies. However, it has a substantial savings component which is what makes the policy variable. Variable life insurance quote can be requested for free on many sites, and online calculators would allow you to compare premiums and minimum expected death benefits for the policy.

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How does it work?

Variable life insurance has two parts. One part provides protection cover for the individual. The other part allocates a portion of the premium paid by the individual to investments which include mutual funds, stock, bonds and other money market funds. This part of the policy is referred to as variable because the returns arenít guaranteed and depend on the market fluctuations. If the market is doing well, the investment could build up quickly allowing you to pay a smaller premium year after year. On the other hand, if the market is doing badly, your returns are lower and hence you will have to pay a greater premium. In simple terms, the variable insurance policy allows individuals to take on investment risk and brace up for potentially higher returns than a steady life insurance.

Variable life insurance pros and cons

One of the advantages includes tax benefits provided by the government for policy holders. There is another significant benefit. As an individual grows in financial stature and liabilities are reduced compared to assets, he or she can choose to allocate a greater part of the policy towards investment in different portfolios. This will work well for those who wish to invest a bigger portion of their money instead of dedicating it to life insurance protection. The rate of return could be higher than whole life insurance which is steadier. Higher returns could result from the investments performing better than the normal insurance account. By partially surrendering the certificate, an individual can also apply for loans. Apart from acting as collateral the cash value can be used as retirement income or for payment of premiums.

The disadvantages of this policy include the dependence on money markets for the returns. If the funds perform poorly, there is a bigger investment risk at hand and fewer returns are available to pay premiums thus increasing the monthly burden. Also, if the cash value isnít sufficient to cover the charges, death benefit isnít guaranteed in this policy, although most insurance providers guarantee a minimum level below which death benefit wouldnít drop.

Group variable life insurance

Group variable life insurance is a special scenario where a group policy or certificate is issued to a group e.g. an organization. The certificate issued to an employer, for example, will extend to the employees and their families who will receive the benefits of the policy. A representative authority will sign the group contract, wherein individuals have to offer satisfactory answers to health related questions. The owner of the group variable life insurance can also convert it into an individual policy.

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