What Is Variable Life Insurance?
Variable life insurance is a type of whole life policy. Whole life policies cover policyholders from the time of purchase until their deaths. After the death of a variable life insurance policyholder, the beneficiary can collect a death benefit.
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Whole Life Insurance
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Whole life Insurance policies contain two elements, a death benefit and an investment component. With each premium payment, a portion of funds pays the death benefit and another portion goes into an investment account. Typically, insurance companies put investment money in fixed-income funds.
Variable Life Insurance
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A variable life insurance policy allows the policyholder to designate the distribution of investment funds. Policyholders can typically choose from a variety of investment instruments in an insurance company's portfolio, including stocks, money market funds, bonds and equity funds. Policyholders can select a single investment instrument or vary the distribution.
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Variable Life Insurance Risks
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Earnings or losses from the investment component of a variable life policy depend on the performance of the investment instruments. When investments perform poorly, the death benefit can decrease, while a positive performance can yield a profit on the investment. Variable life policy terms often include a defined level below which a death benefit cannot decline.
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References
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