What Is a Variable Annuity Life Insurance Policy?

Variable annuity life insurance is a type of life insurance policy where the money you pay into the policy is invested into mutual fund sub-accounts that you choose. The value of the mutual funds you invest in directly affects the value of your life insurance policy.

Benefits

The benefit of a variable policy is that you are able to invest your premiums into a life insurance policy that pays interest based on mutual fund investments. This investment return builds a cash value savings account that allows you to supplement your retirement with tax-free income. It could also significantly increase the death benefit of your policy.

Drawbacks

The drawback of a variable life policy is that premiums invested into the mutual fund sub-accounts may decline in value. This means you may lose all of the money you've put into the policy and have your policy lapse due to the cash value falling below zero in your policy. If your policy lapses, you lose your insurance policy.

Considerations

Make sure you understand the risks inherent in a variable policy. Since you assume all investment risk in the policy, you must be willing to make investment decisions that affect the future of your life insurance policy.

References

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