What is Variable Life Insurance?

Written by Jeff Root

Variable life insurance is a form of permanent, lifelong coverage that also has a cash value account. There is a higher upside potential associated with the cash value accumulation of variable life insurance policies when compared to other permanent life insurance policies, however, they also come with higher fees and greater risk.

As long as you pay your premiums on time, this policy remains in effect for the rest of your life. Within a variable life insurance policy there are three main components:

  1. The Death Benefit Which is Paid Out Upon Death
  2. Cash Value Accumulation Over Time from Premiums
  3. Premiums Paid to Keep the Policy in Place

How Does Cash Value Accumulation Work on Variable Life Insurance Policies?

Each time you pay your premium,  part of that money goes toward the cost of the fees associated with your insurance policy, money that keeps your policy in place and your death benefit available. The rest of it goes into the cash value account which is structured similarly to a brokerage account.

That cash value can then be subsequently invested in different Securities similarly to mutual funds. If the cash value account, it can increase your death benefit or you can use the money as collateral to take out a personal loan, you can even withdraw as cash. This cash value does not disappear if you were to surrender your policy. Instead, you receive it back from the insurance company.

The cash value is what makes a variable life insurance policy stand out from other permanent life insurance policy. Each variable life insurance policy has a prospectus which details between 20 and 30 options that you have as the policyholder to invest your cash value.

The investment tools for building your cash value that are available are very similar to mutual funds insofar as there is a specific set of Securities that you can choose such as bonds, a money market fund, a portfolio of equities, or an index like the S&P 500.

What Fees Are Associated With Variable Life Insurance? 

In addition to these options, variable life products typically have a fixed growth option which is provided to you by the insurance company. This option accumulates interest at a fixed rate. For each policy option there will be additional fees similar to the expenses that one would incur with mutual funds.

These fees change based on the Securities in which you invest and sometimes they can be very high especially if the money is being actively invested, meaning you have a portfolio manager making your stock picks for you.

The management fees for cash value accounts are sometimes called basis points (one basis point is equal to 0.1%). This means if your investment option is listed with a rate of return around 6% but it comes with 125 basis points listed in your management fees, you will need to factor in this 1.25% fee structure into your gains. You get to choose the investment option which means there is a higher earnings potential compared to whole life.

Additionally, the growth earned with your cash value is tax deferred which means you don’t pay taxes on any money you make unless you take that cash value out. As long as it stays in your account it cannot be taxed.

Be cognizant of the fact that you don’t have a guaranteed return rate with these policies and there is usually a maximum rate of return on your policy. So if the market performs poorly or cash value could decrease for a few years.

How Do Death Benefits Work for Variable Life Insurance Policies? 

In terms of your death benefit, variable policies are typically structured in one is to Fashions. First, you might have a level death benefit. This means your death benefit is equal to the face value of your policy at the time he purchased it.

Second, you might have your face value plus your cash value. With this type of life insurance policy, it does cost you more but your beneficiaries receive the face value of your policy in conjunction with the cash value left in your account.

How Do Premiums Work With Variable Life Insurance Policies? 

With a variable life insurance policy also get flexible premiums. You can use your cash value to pay for your premiums and you can also pay a larger amount for your premium than what is the minimum requirement if you so choose. So, assume that your monthly payment is $600. You can choose to pay more than that and the difference will be invested accordingly. So you can put in a lot more money and take advantage of this tax-deferred investment tool if you have it.

You can choose to pay a portion of your premiums out-of-pocket. Again, if your monthly payment is $600, you can pay $300 out of pocket and then use the money in your cash value account to pay the remainder. This is an option typically only available once your cash value reaches a minimum size.

You can also choose to pay your entire premium if you have that much money in your cash value account, never paying anything out of pocket. If you so choose you can over find your cash value account so that you gain better investment returns faster. This is an option that is favorable for policyholders with a sizable income who want to maintain the option of not paying premiums later, especially when they retire.

Individuals using the variable policy like this would invest a lot more with their disposable income while they are still working so that the cash value account bills up substantially enough to pay for premiums while that person is in retirement.

The Pros and Cons of Variable Life Insurance


  • You have the option of enjoying higher death benefits or cash that you can simply use throughout the duration of your life.
  • You can control the investment vehicles you are using and help to supplement things like retirement.
  • The earnings potential is higher with this policy than it is with other permanent policies.


  • There is higher risk associated with a variable policy and while some companies that the minimum at 0 so that you don’t end up with a negative cash value, you can still end up losing if the market performs poorly.
  • Variable life insurance policies cost more compared to others.
  • There are higher fees associated with a variable policy.

Fees for Variable Life Insurance Policies

Fees Description
Expense risk charges This is the cost of providing your death benefit.
Sales and administrative fees This is the cost required to cover the commission for the agent, maintain your policy, and cover any ongoing expenses for the insurance company.
Investment Management Fees This cost is going to vary based on how you choose to invest the cash value of your policy.
Surrender charges Policies come with a surrender period during which time you can withdraw part of the cash and if you do you have to pay a fee. If you choose to surrender your policy you will pay a fee that varies based on the company.
Withdrawal fees Every time you withdraw money from your cash value account you are charged a fee which is typically a low fee of $25.
Policy loan interest If you decide to take out a policy loan with the cash value as your collateral you might be charged interest on the loan from the insurance company.
Riders If you add a feature the cost will come at a separate fee depending on the company and the teacher.

Variable Life Insurance vs. Whole Life Insurance

Variable life insurance and whole life insurance provided with lifelong coverage but the whole life insurance policies are going to have lower risk which means they have a lower potential for cash value earned.

Whole life insurance policies have a level premium so you pay a consistent amount for the rest of your life. The death benefit is also level which means it will not fluctuate and it is guaranteed. You also get guaranteed returns.

Your whole life insurance policy will continue to earn a consistent amount of cash value until the policy matures which is typically about the time you turn 100 years old.

The downside here is that the policy has a fixed upside potential so you cannot possibly earn any more than that fixed upside even if the market performed well. There are also no options were flexible premiums like there are with variable policies.

Is it Good to Invest in Variable Life Insurance?

If you have a decent understanding of the market, you are someone who has invested before and has some knowledge of how investment vehicles work, using your variable life insurance policy as an investment tool is a good idea.

Obviously, this is designed for someone who has more flexibility, is not afraid to lose because of a poor market performance, and has the Financial Security in their personal lives to cover any losses associated with their cash value accounts.

Anyone without this type of security and without knowledge of how the market works or how investment work should not invest in a variable life insurance policy.

How is a Variable Universal Life Insurance Policy Different from a Universal Life Insurance Policy?

A variable universal life insurance policy is different from a regular universal life insurance policy so far as you have more control over the Investments and where that money is invested. You also have higher upside potential but with that, you have higher risk.

Variable Universal Life Insurance Calculator

The amount you are going to pay for your variable insurance policy is going to fluctuate from time to time and of course, the initial amount you pay is based entirely on your application. Life insurance companies will charge you based upon your age, your health, and what features you want to add.

For almost all companies, the cutoff to apply for variable policies is 60 years old. Below is a table with variable life insurance rates for people in the preferred health risk category. Rates will vary with health and age as well as lifestyle and occupation.

Age $500,000 Male  $500,000 Female  $1,000,000 Male  $1,000,000 Female  $2,000,000 Male  $2,000,000 Female 
20 $152 $128 $264 $216 $496 $400
25 $152 $128 $264 $216 $496 $400
30 $160 $136 $272 $232 $504 $416
35 $176 $152 $312 $264 $568 $480
40 $248 $216 $464 $376 $888 $720
45 $416 $328 $760 $600 $1,472 $1,160
50 $682 $484 $1,287 $902 $2,508 $1,760
55 $1,089 $715 $2,057 $1,331 $4,059 $2,574
60 $1,464 $996 $2,712 $1,812 $5,328 $3,552

The Best Variable Life Insurance Companies 

The following companies are some of the best variable life insurance providers on the market.

While they may not have the best rates or policy options for every single specific situation, they are generally very competitive in terms of rates and policy options.

Company A.M. Best Rating Customer Satisfaction Rating
Transamerica A 4.1/5
Prudential A+ 4.3/5
AIG A+ 4.0/5

How to Find the Best Life Insurance Coverage 

When it comes to finding the best life insurance coverage, it is important to make sure that you have taken the time to compare all of your options.

This can be tough to do on your own given the massive amount of coverage options available on the market.

To avoid confusion and potentially not evaluating all of your options to find the best variable life insurance coverage for you and your family, we highly recommend you speak with an independent life insurance agent who represents multiple companies.

Our agents are always here to help, and we represent some of the best life insurance companies on the market in order to provide our clients with the best life insurance coverage for their needs.

Give us a call today to get started comparing your coverage options with a real agent. Or get started online with our instant life insurance quoting tool.

About Best Life Insurance Companies
About Best Life Insurance Companies

We work with individuals across the nation to secure the best life insurance rates.

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