Standard term life insurance and variable life insurance have many
differences, but not all that dissimilar to the differences between term
life and whole life. The standard length of time difference is
certainly the most notable among them – term life insurance is designed
to last only a certain amount of time –whereas whole life lasts the
entire life of the insured.
Variable life insurance is another type of whole life insurance. It is considered one of the more high-risk policies in that the investment component is in the hands of the policy holder (AKA the insured). It comes with a prospectus (a document indicating potential performance of mutual funds, stocks, bonds, etc.) and comes with all the risks and responsibilities of investing.
Major Differences
Of course, the major difference between term life and variable life insurance is the investment portion. Term life has no investment or savings factors at all, meaning that what one purchases is what one gets. If they buy a 3 million dollar policy to expire in 20 years, then that's exactly what will happen. If the insured dies within that time, then the three million would be paid out to the beneficiaries. With a variable life insurance policy, a 3 million dollar policy would last the insured's entire life, but with the investment component, the cash portion of the premiums is going towards investments---and, importantly, this money is tax-deferred. Therefore, if the market performs well, then the policy will have a full payout. If the market performs poorly, however, a policy can tank, meaning additional premiums would have to be paid in order to keep the policy active, ensuring a death benefit for the survivors. It is also important to note that there is no savings account portion with a variable life insurance policy (so, in that way, it is similar to a term life policy).
Another major difference is the cost between the two policies. Naturally, term life insurance is cheaper because it lacks the investment account component. The less risk a policy holder presents, the lower the premiums. Variable life insurance is by far the most expensive because of the high-risk. Additionally, some of the investment expenses can be higher than with other avenues of investing. However, the risks can be offset by a good market performance – and – the minimum death benefit will pay out at the death of the insured as long as the premiums have been paid accordingly.
Which Policy is Better
There is no definitive answer as to which one is better when it comes to variable life insurance versus term life insurance. Both have a great deal of benefits and disadvantages. What is more important to consider is the requirements of the individual. If an individual wants a great deal of control over investments with a tax shelter, then a variable policy may be the better choice. Those who cannot afford high premiums but still want to invest, however, may find that a term life policy would be the ideal selection.
Variable life insurance is another type of whole life insurance. It is considered one of the more high-risk policies in that the investment component is in the hands of the policy holder (AKA the insured). It comes with a prospectus (a document indicating potential performance of mutual funds, stocks, bonds, etc.) and comes with all the risks and responsibilities of investing.
Major Differences
Of course, the major difference between term life and variable life insurance is the investment portion. Term life has no investment or savings factors at all, meaning that what one purchases is what one gets. If they buy a 3 million dollar policy to expire in 20 years, then that's exactly what will happen. If the insured dies within that time, then the three million would be paid out to the beneficiaries. With a variable life insurance policy, a 3 million dollar policy would last the insured's entire life, but with the investment component, the cash portion of the premiums is going towards investments---and, importantly, this money is tax-deferred. Therefore, if the market performs well, then the policy will have a full payout. If the market performs poorly, however, a policy can tank, meaning additional premiums would have to be paid in order to keep the policy active, ensuring a death benefit for the survivors. It is also important to note that there is no savings account portion with a variable life insurance policy (so, in that way, it is similar to a term life policy).
Another major difference is the cost between the two policies. Naturally, term life insurance is cheaper because it lacks the investment account component. The less risk a policy holder presents, the lower the premiums. Variable life insurance is by far the most expensive because of the high-risk. Additionally, some of the investment expenses can be higher than with other avenues of investing. However, the risks can be offset by a good market performance – and – the minimum death benefit will pay out at the death of the insured as long as the premiums have been paid accordingly.
Which Policy is Better
There is no definitive answer as to which one is better when it comes to variable life insurance versus term life insurance. Both have a great deal of benefits and disadvantages. What is more important to consider is the requirements of the individual. If an individual wants a great deal of control over investments with a tax shelter, then a variable policy may be the better choice. Those who cannot afford high premiums but still want to invest, however, may find that a term life policy would be the ideal selection.
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