What is "variable life" insurance?

Variable life insurance is a unique form of permanent life insurance that allows policyholders to allocate their cash value among a variety of investment options, similar to mutual funds. This feature enables the cash value to fluctuate based on the performance of the chosen investments, which can lead to higher growth potential compared to traditional whole life policies that typically offer guaranteed interest rates.

The key characteristic of variable life insurance is its investment flexibility. Policyholders can actively manage their investments, adapting their strategy according to their financial goals and market conditions. This can lead to increased returns, but it also comes with greater risk, as the cash value and potentially the death benefit can decrease if the chosen investments perform poorly.

This type of policy not only provides a death benefit but also offers a living benefit through the potential growth of the cash value. It is important for policyholders to understand how these investments work, as they directly influence both the policy’s value and the benefits it provides over time.