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How does variable life insurance work?

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  • IDEAS How does variable life insurance work?

    Variable life insurance offers the ultimate in life insurance flexibility. The main principle governing variable life insurance is that you control your life investments instead of the life insurance company managing them on your behalf. This enables you to select the level of risk that you subject your life insurance fund to, paving the way for you to make substantial interest gains on the cash-in value of your life insurance policy.

    How does variable life insurance work?

    All life insurance products are a form of investment vehicle. Standard no cash-in value life insurance policies like term life insurance invest life insurance premiums in ultra low-risk funds that are often obliged to return a certain level of interest. This provides the life company with confidence in receiving a tangible level of return, which is transferred through to the life insurance policyholder by way of a guaranteed lump sum payment upon death or terminal illness.

    Variable life insurance is different from standard types of life insurance as the life company hands the investment reigns over to the policyholder. The life company may allow a percentage of the fund to be invested, or in some cases, all of the fund to be invested by the policyholder. Variable life policies come with the disclaimer that the life insurance company takes no responsibility for the performance of the variable life policyholder's investments. Therefore, if the investments perform poorly the policyholder accepts the consequences that there will be little or no cash surrender value when the insurance is redeemed.

    Is variable life insurance for you?

    It is very important to think long and hard about variable life insurance before opting to take it on, as there is a high level of risk involved with this type of life policy. Ideally, variable life policies should only be taken out by seasoned investors who know there way around the investment markets. If you've never invested in the stock market before then a variable life policy is probably not for you.

    However, if you are confident in your investing abilities this is what you stand to gain from taking out a variable life policy…

    1. Variable life policy potential:
    A variable life policy has the potential to make substantial interest gains that are much higher than on a standard term life insurance policy. Whereas you might pay a small premium per month for a £100,000 pay out upon death with a standard policy, if you invest well with a variable life policy that £100,000 could be worth £500,000 or more when redeemed!

    2. Tax advantages:
    The cash surrender values of variable life policies are exempt from taxation until the point at which they are redeemed. Also, gains made via variable life policies are not subject to capital gains tax (CGT).

  • #2
    From getting married to having a baby to starting a business, there are lots of reasons why you’d want to consider buying life insurance. Your family’s immediate and long-term well-being is your top priority.
    Just like you, your loved ones want the best possible future for your family members, but they can only do so much—take care of today’s needs, plan for the years ahead, and hope, like all of us, that our future stays bright.
    Term life insurance gives your family peace of mind, allowing them to rest assured that even you or your loved one’s passing cannot prevent you from providing for their needs as intended.


    • jhon paul
      jhon paul commented
      Editing a comment
      Yes buying life insurance is valuable safety for everyone with a family or to support a mortgage.No one likes think about dying and failing to plan can leave with loved ones with financial stress and bills suppose if you die un expectedly. With the life you can choose the sum that you want to insure And the lump sum paid your beneficiaries if you buy with in the term of the cover.this is what the benefit and that when we buy life insurance...

  • #3
    Variable life insurance is a permanent life insurance policy with an investment component. The policy has a cash value account, which is invested in a number of sub-accounts available in the policy. A sub-account acts similar to a mutual fund, except it's only available within a variable life insurance policy.


    • #4
      Those who own a variable life insurance policy will typically be required to take a more active role in the investment portion of the policy. Therefore, it is a good idea to understand how investing in stocks, mutual funds, and other investment vehicles works before moving forward with the policy purchase. Given this, the owner of a variable life insurance policy should generally have a higher risk tolerance, as it is possible that the value of the invested funds could fluctuate up and down regularly.


      • #5
        I was wondering how insurance companies make money. I latter realised that insurance can make lot of money from underwriting income. For example, Insurer A collects $5,000,000 in premiums for polices issued or renewed in a given year. That is why insurance companies invest the premiums in stocks, bonds, and other interest-bearing accounts


        • Catherine Acorda-Mapalo
          Catherine Acorda-Mapalo commented
          Editing a comment
          Insurance is about sharing risk. It’s a form of security that’s based on cooperation. By distributing the risk of a catastrophe among a group of people, insurance offers a low-cost approach to providing financial security against unforeseen and, quite often, financially devastating events. To earn revenue insurance companies calculate the risk on each policy and set the premium accordingly. The difference between the premiums collected and the money paid out in insurance claims is known as underwriting income. To generate revenue, insurance companies will invest a portion of the small amount of money earned from annual premiums. By taking this money and putting it in low-risk investments, insurance companies can earn additional profits, which help improve their balance sheets and bottom line.

        • jhon paul
          jhon paul commented
          Editing a comment
          Life insurance companies make money by investing premiums to make more that they will have to pay in claims .And the insurance company revenue model is an business arrangement with an individual company where the insurers promises to pay specific amount of money where the specific asset loss by injured usually by damage illness in case of life insurance death.Basically insurance contract is a promise by the insurance company to pay out any losses for the variety of asset spectrums exchange for regular smaller payments made by insured to the insurance company.An a insurance company is for profit enterprise and it has to create internal business model that collects more cash than its pays to customers while factoring the costs to run in business...

      • #6
        Hi John As per your discussion on variable life insurance is really informative topic that you have shared. Here some more information on variable insurance that I have to share that variable life insurance is a permanent life insurance policy with an investment.And this policy will have a cash value account which is invested in a number of sub accounts available in the policy.A sub account act as a mutual fund except with in a variable life insurance policy A typical variable life policy will have several sub-accounts to choose from with some offering upwards of 50 different options. And for each variable life insurance policy has three components.
        • Death benefit
        • cash value
        • Premium
        Every time you make a premium payment, a portion of it goes towards the cost of insurance and insurer’s fees. This is the money that essentially pays to keep the death benefit in place.


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