What is Variable Life Insurance?

Variable life insurance is a type of permanent life insurance that includes a cash value component that may be allocated among a range of investment options. In addition to lifetime coverage, these policies can offer flexibility in premiums and death benefits, depending on the terms of the policy. While Aflac does not offer variable life insurance, we provide whole and term life insurance policies that can help financially protect your loved ones. Here, we dive deeper into variable life insurance to help you decide if it's the right policy type for you.

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Table of Contents

Key Takeaways

Variable life insurance is a type of permanent life insurance policy that features a death benefit and a cash value growth component that can be invested in asset options.¹
Variable life insurance may offer flexible premiums; however, the cash value is subject to market performance and may increase or decrease over time, including the potential loss of value.
Aflac does not offer variable life insurance, but we do offer term and whole life insurance policies that can suit your coverage needs.

What is a variable life insurance policy? 

Variable life insurance is a type of permanent life insurance policy that features a death benefit and a cash value growth component. The cash value lets you invest in various securities, such as stocks, bonds, and mutual funds. These investments can provide more upside potential, but also more risk.¹ With a variable life insurance policy, you can choose an investment strategy and decide how your cash value is allocated.²

Variable life insurance features

Variable life insurance may offer flexible premiums; however, the cash value is subject to market performance and may increase or decrease over time, including the potential loss of value.

Lifelong coverage

Variable life insurance is designed to provide coverage for the life of the insured, provided required premium payments are made and policy requirements are met. Coverage may lapse if premiums are insufficient.

Death benefit

The death benefit payout is the amount paid to beneficiaries if you pass away during the policy term. This allows beneficiaries to help replace your income, pay down debts, cover final expenses, and save for the future. Beneficiaries can opt to receive the death benefit as a lump sum or an annuity with various payout methods, depending on the policy and insurer.

Cash value

Part of each premium you pay goes into a cash value growth component. Once your cash value grows enough, you can borrow from it at favorable terms, withdraw from it, use it to pay premiums, or increase your death benefit, depending on the policy terms. You can also receive your cash value minus surrender charges if you surrender the policy.

Pros and cons of variable life insurance

Variable life insurance offers several benefits, but also some downsides to consider:¹

Pro: Coverage for your whole life

Variable life insurance is a permanent policy that lasts for your entire lifetime as long as premiums are paid.
This eliminates the need to renew coverage and ensures beneficiaries receive a death benefit whenever you pass away.

Pro: Investment growth potential

Policies include a cash value component invested in subaccounts such as stocks and bonds, allowing for potential market-based growth.
Growth is typically tax-deferred, and strong investment performance can increase overall policy value.

Pro: Flexible premiums 

Some policies (especially variable universal life) allow you to adjust premium payments and death benefits over time.
Cash value can be used to help pay premiums, especially if investments perform well.
You can also contribute additional funds to grow cash value more quickly.

Con: More complex policy 

Variable life insurance is considered more complex than other types of life insurance and requires active management of investments.
Policyholders must monitor performance and make investment decisions, which can be time-consuming.

Con: Your cash value could decrease

Cash value fluctuates with market performance, meaning it can increase or decrease depending on investment results.
Poor investment performance can reduce the cash value and potentially impact policy sustainability.

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Is variable life insurance right for me?

Variable life insurance is a permanent life insurance policy that includes an investment component and associated market risk. Whether this policy type is appropriate depends on an individual’s financial objectives, experience with investments, and tolerance for risk. It should not be construed as suitable for all individuals.

You want to actively manage your life insurance investments 

If you enjoy managing your investments and are confident in doing so, a variable life insurance policy could be a good option. Good investment selection and management could help you build tax-deferred wealth faster. This could mean a potentially quicker route to paying premiums with cash value or using it to help cover other expenses.

You’re comfortable with the risks

Selecting securities that can fluctuate in value is inherently riskier than having a policy like whole life insurance, which has cash value that grows at a low but fixed and guaranteed rate. Therefore, variable life insurance may work for you if you have a higher risk tolerance for investments.

You’re willing to pay more in premiums for lifelong coverage 

Variable life insurance tends to cost more than other permanent life insurance policies. This is because the insurer may require more cash value to cushion against a potential market downturn. Plus, your investments may come with administrative and management fees, and offering the investment component itself is more expensive. That said, the risk may be worth the expense if your investments grow sufficiently. Later on, you can use your cash value to pay premiums if it’s large enough.

Alternatives to variable life insurance

If variable life insurance may not meet your needs, there are other types of life insurance to consider:

Term life insurance: Term life insurance typically lasts 10 to 30 years, meaning it can expire and has no cash value. However, premiums are more competitive than permanent life insurance. Aflac offers term life insurance with competitive premiums and customizable coverage options.
Whole life insurance: Whole life insurance is another permanent life insurance policy with cash value. However, the cash value grows at a fixed rate. There is less reward potential, but also less risk. This type of policy can be suitable for policyholders who need a simpler form of lifelong coverage. Aflac offers whole life insurance with lifelong coverage options at premiums that fit many budgets.
Universal life insurance: Universal life insurance blends elements of whole life insurance's stability and variable life insurance's flexibility. It offers lifelong coverage and a fixed, guaranteed cash value interest rate. However, you can adjust your death benefit by raising or lowering your premiums. Aflac does not offer universal life insurance.

Learn more about life insurance

Variable life insurance requires more involvement on the policyholder’s part, given the additional flexibility and ability to select investments. Policyholders may enjoy faster potential growth but also bear the risk of losses if investments underperform. Therefore, variable insurance could be a good option if you have a higher risk tolerance and prefer a more active approach to your policy.

While Aflac doesn’t offer variable life insurance, we do offer a variety of life insurance policies with competitive premiums and a range of coverage options, including term and whole life insurance. Speak with an agent today to learn more and find the right policy type for you.

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