Is Variable or Term Life Insurance Better?

Term life insurance and variable life insurance are two very different kinds of life insurance policies. Although they both offer you death benefit protection and a way to insure your life, you should understand which type of insurance is better for you.

Benefits

Variable life insurance allows you to invest your premium payments into mutual fund sub-accounts. The policy provides death benefit protection and the sub accounts allow you to build cash value inside of your policy that grows tax deferred and can be withdrawn tax-free for supplemental retirement income. Term life insurance offers inexpensive death benefit protection and no cash value. Term life is also simple to understand.

Drawbacks

Variable life insurance comes loaded with various fees. Policy fees and mutual fund fees as well as other expense charges can make variable life insurance an expensive way to purchase life insurance. Term life insurance is only temporary. Because of this, it is not considered suitable insurance for burial insurance.

Considerations

Understand why you are buying life insurance. Life insurance can be used for a variety of purposes, but if you need to insure your mortgage for 30 years, for example, you may be better off with a term life policy. If your need is more permanent, like burial insurance, or supplemental retirement income, you will be better off using variable life insurance.

References

• "Practicing Financial Planning for Professionals (Practitioners' Edition), 10th Edition"; Sid Mittra, Anandi P. Sahu, Robert A Crane; 2007
• "Ernst & Young's Personal Financial Planning Guide, 5th Edition"; Martin Nissenbaum, Barbara J. Raasch, Charles L. Ratner; 2004
• "Life & Health Insurance, License Exam Manual, 6th Edition"; Dearborn Financial; 2004