How to Shop for Variable Life Insurance

Variable life insurance was created to combine the benefits of permanent life insurance with the benefits of other diversified investment products. Purchasers are able to decide which portion of the premiums is allocated to investments and how much is put into the permanent life insurance side of the product.

When a variable life policy is purchased, the investor is allocated a cash value account which can be invested in sub-accounts. Purchasers can chose from various financial instruments that are offered by the insurance company in the investment portion of the contract. Usually, purchasers have access to stocks, bonds, equity funds, money market funds, and bond funds. Some policies offer fifty different sub-account options. The more options the better.

The advantage to a variable life arrangement is that earnings in the investments are not taxed until the policy is terminated. Earnings can also be applied towards future premiums to reduce the total cost of the policy. However, this set up does work in the opposite direction. If the investments are performing poorly, the policy holder may need to pay more to keep the policy active. Poor investment performance also means that the death benefits available to beneficiaries may be lowered. Beneficiaries are, however, provided some form of permanent protection upon the death of the policy holder.

The cost of a variable life insurance policy is more expensive than term insurance because the base policy is full-life insurance. Term insurance is cheaper because there is no investment portion to the policy. Because of the investment risks associated with the investment products in the sub-accounts, variable life insurance polices are regulated under federal security laws.

It is important when shopping for variable life insurance to review all of the policy options and make sure that they meet the purchaser's needs. Also, it is important to compare the fees and sub-account expenses of the different polices that are available. One of the easiest ways to do this is online. A purchaser can investigate the different prospectuses from the comfort of their own home. Some websites even have insurance calculators that will add the different options of the policy for a client automatically. A good financial planner can also be helpful in evaluating an individual's specific situation and helping with the final selection of the policy.

One area to consider when looking for a policy is the insurance firm's financial strength. One way to get an independent view of a company's financial health is to review its ratings from independent agencies, such as A.M. Best.

Once a variable life insurance policy is purchased, the policy holder needs to manage the investments in the sub-accounts to maintain the highest levels of growth. It is also important that the policy holder reevaluates their insurance needs on a regular basis. The general recommendation is that life insurance coverage is reviewed at least once every five years. Coverage should also be evaluated a major life events, such as a marriage or a birth.