What Are The Pros And Cons Of Having A Variable Life Insurance Plan?
Posted January 22, 2010 – 4:15 am in: term life insuranceI am thinking of canceling mine and getting some term insurance, but I don’t want to make any mistakes or moves that I might regret.
Tags: Cons, Having, Insurance, Life, Plan, Pros, Variable, What
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There is really no pros about having variable life insurance. Here are the real facts about variable life insurance
1) It is permanent life insurance where you pay premiums for the rest of your life until you die or cancel the policy.
2) A portion of your premiums are invested in the stock market, particularly in mutual funds.
3) All mutual funds has annual operating expenses. Since an insurance company is managing your assets as well, you are also paying for insurance fees. You are now paying bunch of fees, which eats away the return on your investment.
4) Since your investment is in an insurance contract, you can only borrow money from the cash value or you can cancel the policy and pay surrender fees to get the money.
5) You are guaranteed a minimum death benefit. Your death benefit will grow if your cash value grows. Since the stock market is unpredictable, your cash value will fluctuate. If there is a loss on your investment, your death benefit will never fall below the guaranteed minimum.
If I were you, I would first see if I qualify for term insurance. If you do, then I would either cancel the variable life insurance and put the money in an IRA or in tax-efficient mutual funds OR do a 1035 exchange and move the cash value into a variable annuity. Before canceling the variable life insurance, you want to make sure all loans (if any) are paid. After that, I would invest the difference into mutual funds.
Read both articles attached below.
Insurance is very important for one gets sure of compensation when the risk insured occurs within the specified period makes it important for having a variable life insurance plan.
The disadvantage is that some risks insured do not occur within the specified time and others are not compensated dependind on whether they fullfil requirements.
If you are maxing out on your 401k and retirement funds, a variable policy may be a good option to overfund so that you have future retirement money available….the problem is that many variable policies are sold to insureds with low premiums that will not carry hte policy and ultimately be a waste of your money.
Break your needs out by duration…i.e. if you have a mortgage or other responsibilities that will end in “x” number of years,. you can cover those needs with a low cost term policy.
Hello. If you have variable life insurance you have a permanent life insurance benefit (as long as your annual premiums are paid and the sub-accounts – investment accounts – that your cash account are invested into do well in the stock or bond market). There would be questions to answer before you make such a decision:
1. How much is the variable life policy costing you annually, what is the face amount of the death benefit and what is the cash surrender value?
2. How old are you, are you healthy, do you smoke or have you had any major medical problems?
3. You would have an illustration run on the term insurance at whatever health rating you believe an insurance company would grant you.
4. You would project ahead the cost of the term insurance in 30 years, total the 30 years and compare that to the variable insurance that you now hold. Does your variable insurance have any riders guaranteeing that your sub-accounts won’t decrease past a certain point? If not, you will assume a worst case scenario and a best case scenario…. knowing that you will probably fall somewhere between the two.
At this point you will know what your answer is. Many people will tell you to purchase only term insurance if you are young. That is intelligent only as long as you have some sort of guarantee that you will be able to convert to a more permanent type of death benefit insurance when you are older as the term insurance starts to become exponentially more expensive with the passing of each year.