Dynamic Protection with Investment Potential
Variable Life Insurance
At Protect What You Built (PWYB), we recognize that some clients seek life insurance that offers both protection and the opportunity for significant cash value growth. Our Variable Life Insurance solutions provide a unique combination of lifelong coverage and investment potential for those comfortable with market risk.
What is Variable Life Insurance?
Variable Life Insurance is a form of permanent life insurance that combines a death benefit with a cash value component invested in a variety of sub-accounts, similar to mutual funds. This allows for potentially higher returns, but also comes with increased risk.
Key Benefits of Variable Life
Lifelong Coverage
Provides protection that lasts your entire life.
Investment Options
Choose from a range of sub-accounts with varying risk levels and investment strategies.
Cash Value Growth Potential
Opportunity for higher returns compared to traditional permanent life insurance policies.
Flexible Premiums
Ability to adjust premium payments within certain limits.
Tax-Advantaged Growth
Cash value grows tax-deferred, and loans can be taken tax-free under certain conditions.
Death Benefit Options
Select from level or increasing death benefit options.
Who Should Consider Variable Life?
Variable life insurance can be particularly beneficial for:
- High-income individuals comfortable with market risk
- Those seeking life insurance with maximum growth potential
- Investors looking to diversify their portfolio with a tax-advantaged product
- Business owners wanting flexible life insurance and investment options
- Individuals with a long-term investment horizon and risk tolerance
Variable Insurance as a Financial Tool
At PWYB, we view Variable Life Insurance as a multifaceted financial instrument.
Here’s how it can enhance your overall financial strategy:
- Wealth Accumulation: Potential for significant cash value growth over time.
- Tax-Efficient Investing: Grow your investments in a tax-advantaged environment.
- Estate Planning: Create a substantial, tax-efficient legacy for your heirs.
- Business Succession Planning: Fund buy-sell agreements or key person coverage with a policy that has growth potential.
- Retirement Income Planning: Supplement retirement income through policy loans or withdrawals.
How PWYB Develops Variable Strategies for You
Comprehensive Risk Assessment: We evaluate your financial situation, risk tolerance, and long-term objectives to determine if Variable Life aligns with your goals.
Policy Customization: We structure your policy to balance protection needs and investment goals based on your unique situation.
Investment Strategy Development: We help you select and allocate among sub-accounts that align with your risk profile and financial objectives.
Integration with Wealth Management: We ensure your Variable Life policy complements your overall investment and retirement strategies.
Ongoing Portfolio Management: We provide regular reviews to rebalance your sub-account allocations and adjust your strategy as needed.
Common Variable Life Insurance Questions
The investment component of Variable Life Insurance works as follows:
- A portion of your premium goes toward the cash value of your policy.
- You choose how to allocate this cash value among various sub-accounts offered by the insurance company.
- These sub-accounts are similar to mutual funds and can invest in stocks, bonds, money market instruments, or a combination.
- The cash value of your policy fluctuates based on the performance of your chosen sub-accounts.
It’s important to note that you bear the investment risk. Strong performance can significantly increase your cash value, but poor performance can decrease it.
At PWYB, we help you understand these dynamics and select an allocation strategy that aligns with your risk tolerance and financial goals. We also stress the importance of regular reviews to ensure your investment strategy remains appropriate as markets and your personal situation change.
While both are forms of permanent life insurance, there are several key differences:
- Investment Control:
- Variable Life: You choose and manage investments in sub-accounts.
- Whole Life: The insurance company manages investments.
- Cash Value Growth:
- Variable Life: Potential for higher growth, but also risk of loss.
- Whole Life: Guaranteed cash value growth at a fixed rate.
- Risk:
- Variable Life: Higher risk due to market exposure.
- Whole Life: Lower risk with guaranteed cash value.
- Premiums:
- Variable Life: Often flexible.
- Whole Life: Typically fixed.
- Dividends:
- Variable Life: Generally doesn’t pay dividends.
- Whole Life: May pay dividends (though not guaranteed).
At PWYB, we thoroughly explain these differences and help you choose the policy type that best fits your financial goals, risk tolerance, and desire for control over policy investments.
Poor investment performance in a Variable Life policy can have several implications:
- Decreased Cash Value: Your policy’s cash value may decrease, potentially to zero in extreme cases.
- Risk to Death Benefit: If cash value falls too low, you may need to pay additional premiums to maintain the death benefit.
- Policy Lapse: In worst-case scenarios, the policy could lapse if there’s insufficient cash value to cover policy charges.
- Limited Access to Cash: Poor performance may limit your ability to take loans or withdrawals from the policy.
- Tax Implications: If the policy lapses with outstanding loans, you may face unexpected tax consequences.
To mitigate these risks, at PWYB we:
- Help you select an appropriate mix of sub-accounts based on your risk tolerance.
- Recommend regular policy reviews to adjust your strategy as needed.
- May suggest over-funding the policy in good years to create a cushion for potential down years.
- Explore options like an overloan protection rider to help prevent policy lapse.
Remember, Variable Life Insurance is a long-term financial tool. Short-term market fluctuations, while impactful, should be viewed in the context of your overall financial plan and the policy’s intended purpose.
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