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Nitat Termmee/Getty Images September 06, 2022 Lizzie Nealon is an insurance contributor for Bankrate and enjoys making home, auto and life insurance digestible for readers so they can prepare for the future. Maggie Kempken is an insurance editor for Bankrate. She helps manage the creation of insurance content that meets the highest quality standards for accuracy and clarity to help Bankrate readers navigate complex information about home, auto and life insurance. She also focuses on ensuring that Bankrate’s insurance content represents and adheres to the Bankrate brand. Bankrate logo The Bankrate promise
At Bankrate, we strive to help you make smarter financial decisions. To help readers understand how insurance affects their finances, we have licensed insurance professionals on staff who have spent a combined 47 years in the auto, home and life insurance industries. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation of how we make money. Our content is backed by LLC, a licensed entity (NPN: 19966249). For more information, please see our Insurance Disclosure. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our insurance team is composed of agents, data analysts, and customers like you. They focus on the points consumers care about most — price, customer service, policy features and savings opportunities — so you can feel confident about which provider is right for you. We guide you throughout your search and help you understand your coverage options. We provide up-to-date, reliable market information to help you make confident decisions. We reduce industry jargon so you get the clearest form of information possible. All providers discussed on our site are vetted based on the value they provide. And we constantly review our criteria to ensure we’re putting accuracy first. Bankrate logo Editorial integrity
Bankrate follows a strict , so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. Key Principles
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Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo How we make money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. Bankrate logo Insurance Disclosure
Coverage.com, LLC is a licensed insurance producer (NPN: 19966249). Coverage.com services are only available in . Coverage.com may not offer insurance coverage in all states or scenarios. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way. There are several types of permanent life insurance, one of which is variable life insurance, which provides lifetime coverage and generates a cash value that gets invested directly in the stock market and grows based on the fund’s performance. While variable life insurance has the potential for big gains, it’s also one of the riskier types of life insurance. If you are considering variable life insurance, here is what you should know before buying a policy. This advertising widget is powered by HomeInsurance.com, a licensed insurance producer (NPN: 8781838) and a corporate affiliate of Bankrate. The offers and clickable links that appear on this advertisement are from companies that compensate Homeinsurance.com LLC in different ways. The compensation received and other factors, such as your location, may impact what ads and links appear, and how, where, and in what order they appear. While we seek to provide a wide range of offers, we do not include every product or service that may be available to you as a consumer. We strive to keep our information accurate and up-to-date, but some information may not be current. Your actual offer terms from an advertiser may be different than the offer terms on this widget. All offers may be subject to additional terms and conditions of the advertiser. Compare life insurance providers quickly and easily
See which provider is right for you. The amount of coverage you need depends on many factors, including your age, income, mortgage and other debts and anticipated funeral expenses. Whole life insurance combines life insurance with an investment component. Coverage for life Tax-deferred savings benefit if premiums are paid 3 variations of permanent insurance: whole life, universal life and variable life include investment component Term life insurance is precisely what the name implies: an insurance policy that is good for a specific term of time. Fixed premium over term No savings benefits Outliving policy or policy cancellation results in no money back Find matches Powered by HomeInsurance.com (NPN: 8781838) This advertising widget is powered by HomeInsurance.com, a licensed insurance producer (NPN: 8781838) and a corporate affiliate of Bankrate. HomeInsurance.com LLC services are only available in states where it is licensed and insurance coverage through HomeInsurance.com may not be available in all states. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way. Bankrate Why Lemonade? It's a fresh twist on life insurance: easy, accessible and affordable. See more providers in Choose from insurers in Show More What is variable life insurance
Variable life insurance is a type of . Unlike term life insurance, permanent policies are designed to last for the entirety of your life. When you pass away, your beneficiary receives the death benefit. Variable life insurance also has an adjustable death benefit and premiums, making it one of the more flexible life insurance policies available. How does variable life insurance work
Variable life insurance includes two components: a life insurance death benefit and a cash value account that is invested in various funds, usually mutual funds. The money from your insurance premium is used in a few ways. First, the insurance company keeps a portion of the money for account maintenance and fees, and puts some money toward the death benefit. The rest of the money goes toward your policy’s cash value, which, in a variable life policy, is essentially an investment account. As the policyholder, you can choose how that money is invested. Cash value component
When you purchase a variable life policy, you’ll receive a prospectus with all of your investing options. The can be invested in numerous ways, but the most common way is to invest in mutual funds. You may also be able to invest in index funds, equities, bonds or money market funds. Most insurance companies also offer a fixed interest investment option. If your cash value investment does well, you have several options. You can use the money to increase the death benefit, withdraw the money as cash or use the funds as collateral for a loan. However, most insurance companies put a cap on the maximum rate of return, so your earning potential isn’t endless. You’ll also have to pay management fees based on how your cash value is invested. Here’s a real-world example. Say your variable life insurance premium is $300, and $200 of it goes into your cash value account. Based on the market’s performance, you can choose which fund you want to invest that $200 into. Over 10 years, your $200 grows to become $2,000. At that time, you can either pull out the $2,000 and use it as cash, add it to your death benefit, or use it as loan collateral. Keep in mind a small percentage would be allocated toward fees. As with any investment, your cash value is influenced by the performance of the stock market. The market rises and falls, which means you could either earn money or lose money. That’s both a pro and a con to variable life insurance. You have full control over where you invest the money but there’s no guaranteed rate of return. Your cash value could appreciate or depreciate, depending on what the market does. Pros and cons of variable life insurance
Is variable life insurance right for you? That likely depends on your preferences and financial situation. Below, we outline the pros and cons. Pros Cons Protect your family financially Generally expensive Death benefit could increase Returns are capped More flexibility than other life insurance policy types Investment options are limited Pros
Variable life insurance policies have significant benefits, including: Financial protection for your family. Any life insurance policy can be beneficial to help cover end-of-life expenses and provide a financial cushion for your family should you pass away. Despite the added risk, variable life insurance accounts still offer a death benefit. A potentially increasing death benefit. While you are still living, you may have the option to convert your cash value into a higher death benefit amount. That way, when you pass away, your beneficiaries will receive a larger payout from the policy. Flexibility and choice. Policyholders get to choose from several funds when deciding where to invest their money. Plus, the premiums are adjustable if you have sufficient funds in your cash value account. Cons
As with anything, downsides to variable life insurance do exist. These cons may include: High premiums. The premiums for variable life are generally pricier than other types of life insurance and you may also have to pay management fees for your investments. Because the market is volatile, you could end up losing your cash value if the market has a bad year. Capped returns. Unlike some investments outside of life insurance, the amount of money you can make on your cash value in a variable life policy is limited. Limited investment options. You will likely choose from a set number of funds that operate like mutual funds. If the available funds don’t meet your needs, you may be better off investing outside of a variable life insurance policy. Alternatives to variable life insurance
Variable life insurance is not the only life insurance option available. Below, we discuss popular life insurance policy types that may be a good alternative if variable life isn’t the right choice for your lifestyle. Term life insurance
offers coverage over a set period of time — usually 10, 15, 20, 25 or 30 years. If you pass away during the term, your beneficiary receives the death benefit. If you outlive the term, your coverage ends. Term life insurance can be beneficial if you need coverage for a certain period of time, or if you want a cheaper premium. Unlike a permanent life insurance policy, term life insurance does not generate cash value. Whole life insurance
Unlike term life insurance, is designed to last your entire life. The policy comes with a fixed death benefit, level premiums and provides a cash value account that can grow over time, tax-deferred. You have the option to withdraw or borrow the cash value while you are still living and use the money for any purpose. However, although pulling money out of your cash value can lower your death benefit, the cash value does not add to your death benefit. Universal life insurance
is also a permanent policy, meaning it covers you for the rest of your life. This policy builds cash value, which grows based on an interest rate that is tied to the stock market. Unlike some other types of life insurance, you can use your cash value to change the frequency and/or amount of your premiums. You can also adjust the death benefit if your family’s financial needs change overtime. Guaranteed life insurance
is a type of whole life insurance that allows policyholders to get coverage without taking a health exam. If someone with significant health concerns isn’t accepted by other insurance policies, guaranteed life insurance can be a good option. However, keep in mind that guaranteed life insurance policies have higher premiums and the death benefit amounts are typically lower. Final expense insurance
is meant to finance funeral costs and other end-of-life expenses. When you pass away, final expense insurance can protect your loved ones from having to worry about paying for your funeral costs while grieving. Final expense insurance is guaranteed, which means you don’t need to take a medical exam to get approved. However, the premiums are generally expensive despite the fact that it offers a small amount of coverage (usually capped at $50,000 or less). Frequently asked questions
What is the best life insurance company
The will vary for every policyholder, based on the type of policy you are looking for, as well as any riders or company features — like a mobile app — you might want. To make your choice, you may want to talk with a licensed insurance agent to help you determine your needs.
How does borrowing cash value from variable life work
One of the benefits of a variable life insurance policy is that you can borrow or withdraw the cash value when you are still living. This money is tax-free and can be used for any purpose. However, when you borrow cash value, you’re essentially getting a loan from the insurance company, which means you have to pay the money back with interest. Also, if you withdraw money, it gets subtracted from your death benefit, lowering the amount of money your beneficiaries will receive.
What is the greatest risk in a variable life insurance policy
The greatest risk in a variable life insurance policy is the risk of the investments. The insurance company doesn’t guarantee any rate of return (in most cases) and doesn’t offer protection for investment losses. Like any investment, the cash value component of a variable life insurance policy comes with risk. If you use your cash value to pay your premium, you could also risk losing coverage if your cash value is insufficient to cover the minimum amount.
How do I decide how much life insurance I need
The amount of life insurance you’ll need depends on your family’s financial needs. If you only need coverage for end-of-life expenses, you’ll likely need a lower death benefit than someone looking to provide income for their family members or leave money to heirs. To determine how much coverage you need, you can use a and then discuss the results with a licensed agent. SHARE: Lizzie Nealon is an insurance contributor for Bankrate and enjoys making home, auto and life insurance digestible for readers so they can prepare for the future. Maggie Kempken is an insurance editor for Bankrate. She helps manage the creation of insurance content that meets the highest quality standards for accuracy and clarity to help Bankrate readers navigate complex information about home, auto and life insurance. She also focuses on ensuring that Bankrate’s insurance content represents and adheres to the Bankrate brand. Related Articles