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What Is Variable Life Insurance?

Feb 12, 2021 5 min read Riley Adams, CPA

Key takeaways

  • Variable life insurance is permanent coverage with flexible premiums and many investment choices.
  • You can customize a policy to fit your financial needs.
  • If you want a wider range of investment options, variable life insurance might be the right choice.


If you've been shopping for a life insurance policy, you've probably come across a few different types, each with pros and cons. One such type is variable life insurance, which offers some unique advantages.

Depending on your situation and financial goals, variable life insurance could be right for you.



What is variable life insurance?

Variable life insurance allows you to build a cash value and invest it. Your policy's cash value builds over time as you make premium payments, which then get split into three buckets. Some goes toward the death benefit, some toward the insurer's costs, and some for your policy's cash value. That cash value is then invested.

Closely related to variable life is a variable universal life insurance policy. This type of policy allows you to:

  • change the amount and frequency of your premium payments
  • invest through an underlying cash value
  • alter your coverage terms.

Both policies are types of permanent life insurance. Unlike term life insurance, which only provides coverage for a set number of years, permanent life insurance promises a death benefit when you die and never expires, as long as you pay sufficient premiums and the other guarantee requirements are met.


What are the benefits?

Higher growth potential

Unlike other permanent policies, variable life insurance lets you grow your cash value (and sometimes the value of the policy's death benefit) by investing it into underlying investment options including equity, bond and money-market portfolios. There is risk involved as the cash value can either increase or decrease, but a well-managed policy could gain value as the market grows over the years.

Variable life or variable universal life insurance will be more expensive (and more complicated to manage) compared to term policies with the same death benefit. However, the higher cost may be worth it in the long run.

Guaranteed and flexible death benefit

Variable life can guarantee a death benefit, though you will want to confirm this by checking your policy's terms. Typically, your insurer can structure your death benefit in one of two ways: A level death benefit equals the face value when purchased. For more cost, you can choose this face amount plus the cash value as your death benefit.

A variable universal policy lets you increase or reduce your death benefit and premiums. For example, if you have another child, you might increase your death benefit to protect your growing family. Likewise, you might reduce your coverage if your child graduates college and becomes financially independent.

Flexible premium payments

Instead of paying the same premium amount every month as with a term life policy, variable life insurance lets you pay more of your premiums upfront, pay premiums from the policy's cash value, or pay a monthly minimum premium without building cash value. Paying the minimum keeps policy from lapsing and the death benefit in place. Anything beyond the minimum goes toward the cash value.


Different types of variable life insurance

There is a lot of variety among types of variable life insurance policies. They can be designed and customized for a wide range of financial situations and personal goals.

For example, different policies might offer various risk-based investment strategies, the ability to cover two people, and living benefits. These living benefits include the ability to buy "riders" that provide extra disability coverage or letting you borrow from your cash value.

Variable life insurance policies sometimes offer a No-Lapse Guarantee, which means that as long as you keep paying your premium at a minimum agreed-upon amount, your life insurance policy will stay active. If you have a level death benefit, keeping current on your premiums will guarantee a death benefit payout if you die. If you take policy loans and withdrawals as a living benefit, they will reduce cash values and death benefits; may reduce the duration of the guarantee against lapse, which may lapse the policy; and may have tax consequences.


How is variable life insurance taxed?

Variable life insurance isn't just an insurance policy; it also has an investment component. When you pay your premiums (beyond the minimum amount), you're not just purchasing coverage; you're placing money into underlying investment options including equity, bond and money market portfolios. Their values fluctuate with the market. Variable life insurance follows the same regulations as financial instruments like stocks, bonds and mutual funds, so it's considered a securities contract.

Any cash value growth within your policy is tax-deferred. If you borrow against your cash value, the loan proceeds are generally not considered taxable income.


Is variable life insurance right for you?

Many convenient resources (including, of course, Prudential) can help you understand life insurance and guide your decision. Variable life insurance can offer some of the same pros as other types of life policies: a death benefit and the ability to build cash value. But variable life offers greater flexibility for premium payments and the opportunity to invest the cash value. If you want long-term growth potential, and you're willing to manage your premiums and choose investments to suit your financial goals, variable life insurance might be the right choice.


What you can do next

Research how variable life policies can fit into your overall financial goals, and get more information about how they perform. For example, you can get reports online that give details on the investment options and investment performance of different policies and companies. Then seek out a financial professional to discuss your options and decide whether variable life insurance could benefit you.



Riley Adams, CPA, is a senior financial analyst at Google with over a decade of professional experience. He has written for MarketWatch, Kiplinger, MSN, Yahoo Finance, Morningstar and TDAmeritrade, as well as his own personal finance website.


Please consider the investment objectives, risks, and charges and expenses carefully before investing in the contract and/or underlying portfolios. It is possible to lose money by investing in securities. Guarantees are based on the claims-paying ability of the issuing insurance company and do not apply to the underlying investment options. It is possible to lose money by investing in securities.

Life insurance policies with living benefits are issued by Pruco Life Insurance Company, except in New York, where they are issued by Pruco Life Insurance Company of New Jersey. Both are Prudential Financial companies located in Newark, NJ, and both are solely responsible for their own financial condition and contractual obligations.

Any accelerated benefits received will reduce and may deplete the death benefit available for the policy’s beneficiaries. These living benefits are typically available for an additional charge and are subject to underwriting approval.

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