July 1, 2019

What is Variable Life Insurance?

Read more about Life Insurance

Variable life is a life insurance policy that also works as an investment vehicle. But what are the drawbacks? Read on to learn whether variable life is worth it.

© CreditDonkey

What Is Variable Life Insurance?

Variable life insurance is a type of permanent life insurance that features a death benefit and an investment account.

Permanent insurance means the policy doesn't expire. It only ends when you die, cancel, or stop making payments.

The investment portion is managed by the life insurance company. It gives you the option of investing the cash value your policy builds.

You can choose from:

  • Stocks
  • Emerging market funds
  • Fixed interest funds
  • Bonds
  • Money market mutual funds

There is the risk your investments won't do well. If that happens, you would lose the cash value you invested.

Your death benefit could also decline. That's why it's important you find a policy with a guaranteed minimum death benefit. (More on that below.)

What Are the Advantages and Disadvantages of Variable Life Insurance?


  • It's both life insurance and an investment vehicle.

  • It gives you a guaranteed death benefit for the rest of your life.

  • There's a wide variety of investment options.

  • You have control over your investments, which gives you an edge against inflation.

  • You can take a loan with little or no interest against the policy's cash value.

  • You can use the accumulated cash value to pay future policy premiums.

  • You can get a high rate of return on invested funds compared to other permanent insurance plans.

  • It provides a supplementary income when you retire.

  • You get fixed premiums for life; they don't increase as you age.

  • It provides tax-deferred earnings.


  • It's very costly.

  • You're stuck paying the high premium amounts for the rest of your life.

  • Cash value growth is not guaranteed.

  • You have to take an active role in investing.

  • You could lose your cash value with risky investing or a volatile market.

  • Investment fund management fees are high.

  • Your premiums can increase if your investments aren't performing well.

How Does Variable Life Insurance Work?

Here's how a variable life insurance policy works:

  1. You make your premium payment every month to the insurance company.

  2. The insurance company first deducts its administrative fees. Then it puts a portion of the payment toward your death benefit and a portion toward cash value.

  3. You choose the mutual funds in which to invest the cash value amount. The life insurance company offers multiple choices in its investment fund, including stocks, bonds, or money market accounts.

    Your life insurer should provide you with a prospectus of each investment fund and its objectives.

  4. You track the performance of your investment account. If your investments grow, your cash value amount increases. If your investments take a loss, your cash value amount decreases.

    Your investments grow tax-deferred, so you do not have to pay taxes on the gains every year.

    Minimum Guaranteed Death Benefit:
    Represents the amount your beneficiary will receive no matter how badly your investment portfolio performs.

    If your variable life policy does not have a guaranteed death benefit, the insurance company can reduce the value of your death benefit to cover any investment loss.

  5. You can change how you allocate your funds at any time without paying fees. This may mean moving money out of riskier stocks when the stock market falters or take on more risk during economic booms.

    By doing so, you could avoid any big losses to the policy's cash value. Each year, the life insurance company deducts fees related to managing the investment account.

  6. You can tap into the cash value earnings throughout your life. For example, you can take out a loan against it or withdraw some or all of the available amount.

    Later in life, you can use the investment earnings as a retirement account or to pay your policy's premiums.

  7. Upon your death, your variable life insurance policy pays out the death benefit amount to your beneficiary and the policy ends.

How Much Does Variable Life Insurance Cost?

The cost of variable life insurance is dependent on several factors:

  • Amount of Coverage
  • Age
  • Gender
  • Occupation Risk
  • Health
  • Medical History
  • Family's Medical History
  • Tobacco Usage
  • Lifestyle

The cost of variable life insurance is high because it's permanent insurance. Here are a few examples:

For $1 million in coverage, a 30-year-old would likely pay between $3,790 - $6,226 a year in premiums.

For a 55-year-old, that same $1 million policy would cost between $13,500 - $15,000 a year.

Purchase life insurance when you're young (and probably healthier). With all types of coverage, the older you are when you buy a policy, the more it will cost.

How Does Variable Life Insurance Compare with Term Life?

Term Life Insurance is less expensive than permanent insurance (like variable) because it only provides a death benefit for a certain length of time. When the term ends, the policy expires. Some common terms are 10, 20, and 30 years.

Here's a comparison between term life and variable life insurance using a 30-year-old, healthy male with a life insurance policy valued at $1 million:

Variable Life Insurance Policy:

  • $835.30 per month
  • $10,023.60 per year for the rest of his life
  • That's $300,708 in 30 years.

30-Year Term Life Policy:

  • $82.00 per month
  • $984.00 per year
  • $29,520 total over the 30 years

The initial term policy expires when he's 60 years old. If he needs additional coverage, the longest term available to him is 20 years for a monthly premium of about $415.02 per month. That's $99,604.80 over the next 20 years.

With his term life policies, the man paid a total of $129,124.80 for term life insurance by age 80.

With the variable life insurance policy, the policyholder would have paid $372,055.20 less (about $501,180) by age 80.

If you can invest the amount you save on premiums, a term policy is usually the better option.

But if you aren't disciplined enough to save, the variable life insurance policy with the automatic investment component would have been the better choice.

Other Permanent Life Insurance Options

Keep reading to understand some of the features of other permanent policy options.

Whole Life Features:

  • Fixed death benefit
  • Fixed premiums
  • A slow growing, low rate savings account
  • Some policies pay dividends

Variable Life Features:

  • Guaranteed minimum death benefit
  • Fixed premiums
  • Investment account

Universal Life Features:

  • Flexible death benefit
  • Flexible premiums
  • More stable money market rate investing

Variable Universal Life Features:

  • Flexible death benefit
  • Flexible premiums
  • An investment option of your choice

There is no guaranteed growth of investments with variable life, universal life, or variable universal life insurance. You could lose the cash value in your policy and jeopardize your death benefit amount.

All permanent life insurance policies also have investment fees. Some are higher than others. For example, variable life insurance has higher fees than whole life insurance. Be sure to inquire about all fee amounts you will be paying.

Which type of life insurance is best for you? Keep reading to narrow it down.

Life InsuranceBest If...
Variable Life & Variable UniversalYou want to be more involved in which funds you invest in.
Universal LifeYou want a more controlled environment over market fluctuations.
Whole LifeYou want no investment involvement or risk. There is guaranteed growth.
Variable Universal LifeYou want more flexibility to change your death benefit amount and decide the amount and frequency of your premium.

Where Do I Buy Variable Life Insurance?

Not all life insurance companies sell variable life insurance. Read on to learn some good places to begin your search.

  • Online Insurance Marketplaces
    These are among the best resources for finding companies selling variable life insurance. Online marketplaces offer different types of life insurance products from many different companies.

  • Independent Insurance Agencies
    Independent insurance agencies represent the buyer and have access to many different insurance plans.

  • Your Existing Insurance Companies
    You could also check with your current auto or home insurer to see if they sell life insurance. Or, you might belong to an association that offers its members life insurance products at a group rate.

Be sure to get quotes from several insurance companies. Each one prices its policies differently based on the company's risk guidelines. For example, one may charge more if you have diabetes that's being managed, while another does not.

Read the prospectus carefully. Variable life insurance plans may be structured differently, particularly the investment component. If you don't understand the prospectus, ask your agent to explain it in detail.

Bottom Line

Variable life insurance combines life insurance with an investment vehicle. Many people use this type of insurance as part of their financial strategy and retirement planning.

While variable life has its advantages, it isn't for everybody. It's expensive and there are coverage risks involved if your investments don't do well.

Before investing in a variable life insurance policy, review all options with your insurance agent or financial advisor. You want to be certain this type of insurance plan meets your short- and long-term life insurance and investment goals.

Write to Maryellen Cicione at feedback@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

Read Next:

Adjustable Life Insurance

Adjustable Life Insurance

What is Whole Life Insurance?

What is Whole Life Insurance?

Cash Value Life Insurance

Cash Value Life Insurance

Life Insurance Beneficiary: What You Need to Know

Life Insurance Beneficiary

Guaranteed Life Insurance: What You Need to Know

Guaranteed Life Insurance

Best Life Insurance

Best Life Insurance

Life Insurance

What's the Best Age to Buy Life Insurance?

Best Age to Buy Life Insurance

Why Whole Life Insurance is a Bad Investment

Why Life Insurance is Bad Investment

Do I Need Life Insurance After 50?

Do I Need Life Insurance After 50?

Do I Need Life Insurance at 30?

Do I Need Life Insurance at 30?

Do I Need Life Insurance If I Have No Dependents?

Do Single Adults Need Life Insurance

Why It's Good to Get Life Insurance at a Young Age

Why It's Good to Get Life Insurance at a Young Age

Best Online Life Insurance Companies

Online Life Insurance

A good online life insurance policy can protect your family in minutes. Take a look at the most trustworthy companies to buy from.

About CreditDonkey
CreditDonkey is a life insurance comparison website. We publish data-driven analysis to help you save money & make savvy decisions.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed on this page are those of the author's alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.

†Advertiser Disclosure: Many of the offers that appear on this site are from companies from which CreditDonkey receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). CreditDonkey does not include all companies or all offers that may be available in the marketplace.

*See the card issuer's online application for details about terms and conditions. Reasonable efforts are made to maintain accurate information. However, all information is presented without warranty. When you click on the "Apply Now" button you can review the terms and conditions on the card issuer's website.

CreditDonkey does not know your individual circumstances and provides information for general educational purposes only. CreditDonkey is not a substitute for, and should not be used as, professional legal, credit or financial advice. You should consult your own professional advisors for such advice.

About Us | Reviews | Deals | Tips | Privacy | Do Not Sell My Info | Terms | Contact Us
(888) 483-4925 | 680 East Colorado Blvd, 2nd Floor | Pasadena, CA 91101
© 2022 CreditDonkey Inc. All Rights Reserved.