What Is Variable Life Insurance?

Variable life insurance is a policy that pays out a death benefit and includes various investment options, subject to market volatility.

Written by Devon Delfino / May 23, 2022

Quick Bites

  • Variable life insurance is a policy with fixed premiums that provides a payout to your beneficiaries when you die. It also has a cash value component.
  • Funds can be invested in various markets, which means you could gain returns, but you could also lose money.
  • Variable life insurance policies may include fees that could negate the potential cash value benefits.

When it comes to life insurance, it’s easy to feel overwhelmed. Do you want term or permanent coverage? How much coverage do you need? Can you qualify? Who should you name as a beneficiary? What if your circumstances change later on?

Variable life insurance is just one of the options that you may come across when shopping around for coverage. Here’s what you should know about it, including how it works, costs and risks.

Inside this article

  1. What is variable life insurance?
  2. How much does it cost?
  3. Variable life comparison
  4. Risks of variable life insurance

What is variable life insurance?

Variable life insurance is a policy that provides a payout to your beneficiaries when you die, and the opportunity to earn money. These policies are valid for the rest of your life, or as long as you pay the premium. That payment is fixed, meaning what you pay now is what you’ll pay until death.

Part of the premium pays for the death benefit, and part of it goes into an account, where the money can be invested. That’s known as the cash value, which you can borrow against. The policy is “variable” because the cash value can fluctuate depending on where it is invested. Companies can offer a number of different options to choose from, including stocks and bonds.

“In a variable product, the policyholder is getting to choose how they invest it, so the policy can perform a lot better than a non-variable policy, but it can also perform a lot worse,” says Jay C. Judas, chief executive officer of the Life Insurance Strategies Group.

Tip: Variable life insurance is often confused with variable universal life insurance. Variable universal life insurance is a permanent policy with investment options. Unlike variable life insurance, however, premiums are not fixed.[1]

Because of those fluctuations, the death benefit for your beneficiaries could take a hit, but you can typically purchase a guaranteed death benefit rider, which means that even if your cash value performs poorly, you’d still get the full death benefit.

How much does variable life insurance cost?

The cost of variable life insurance depends on many factors, like how much coverage you want, what riders you purchase, and your age, gender and general health. Variable life policies will also come with fees, including on administration, loan interest and sales.[2]

Tip: If you are considering a variable life policy, it’s important to ask for the prospectus, a document filed with the Securities Exchange Commission detailing risks of the policy, which is free. That contains vital information, like fees, expenses, investment options and other features.[3]

Variable life insurance versus other types of insurance

Premiums[1,4]Cash value[1,4,5]Term[1,6]
Term life insuranceFixedNoLimited (usually 10 to 30 years)
Whole life insuranceFixedYes; guaranteedLifetime
Universal life insuranceFlexibleYes; guaranteedLifetime
Variable universal life insuranceFlexibleYes; not guaranteedLifetime
Variable life insuranceFixedYes; not guaranteedLifetime

Risks of variable life insurance

Variable life policies are not without risk. As mentioned above, because you have the ability to choose your investments, you can potentially earn more than you’d get with something like a whole life policy, which caps cash value. On the other hand, if the market performs poorly, you could lose money.[5]

“A lot of the risk in how the policy performs is shifted to the policyholder as opposed to the insurance company. So you definitely … have to be comfortable making those investment decisions,” says Judas.

Another key consideration here is that because of the often high fees and expenses associated with these policies, it’s not worth it if you’re using it as a short-term savings option.[2] So if you’re looking for that, you might be better served with another type of policy, like a whole life policy that guarantees certain returns.

At the end of the day, variable policies may not make sense for a lot of people, especially since other options come with less risk. However, for those who like to take a hands-on approach to their finances, are OK taking on more risk in exchange for a potentially higher reward or are willing to pay extra for riders to protect their investments, it may be a useful option.

Article Sources
  1. “Variable Universal Life Insurance Explained,” Guardian Life, https://www.guardianlife.com/life-insurance/variable-universal-life-insurance.
  2. “Investor Bulletin: Variable Life Insurance,” SEC, https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_varlifeinsurance.
  3. “Variable Life Insurance,” Investor.gov, https://www.investor.gov/introduction-investing/investing-basics/investment-products/insurance-products/variable-life.
  4. “Variable Universal Life Insurance,” Nationwide, https://www.nationwide.com/personal/insurance/life/variable.
  5. “Life Insurance,” Nation Association of Insurance Commissioners, https://content.naic.org/cipr-topics/life-insurance.
  6. “What Are the Different Types of Permanent Life Insurance Policies?” Insurance Information Institute, https://www.iii.org/article/what-are-different-types-permanent-life-insurance-policies.

About the Author

Devon Delfino

Devon Delfino

Devon Delfino is a writer who’s covered personal finance—including everything from student loans to budgeting to saving for retirement and beyond—for the past six years. Her financial reporting has appeared in publications like the L.A. Times, U.S. News and World Report, Teen Vogue, Masha

Full bio

Related Content