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.