Best Variable Life Insurance

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Contributor, Benzinga
Updated: June 24, 2022

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Does protecting your family with life insurance while investing in their future sound like the best option for you? If you know you need life insurance but would also like to invest your money in stocks, bonds or even a money market account, variable life insurance is for you. Learn more with our guide and find the best options.

We all have different goals and concerns when choosing the best life insurance to protect our families. Fortunately, shopping for life insurance has never been easier. You can get started with a fast, free quote from leading companies. Here are our top picks for variable life insurance companies and what makes each a standout in a crowded field.

Best Variable Life Insurance:

1. Allstate

Variable life insurance is a specialty investment product subject to Financial Industry Regulatory Authority (FINRA) regulation. This means not every insurance agent can sell a variable life policy. Instead, many Allstate agents use a regional life insurance specialist who knows these and other life insurance products inside and out. 

With tens of thousands of agents nationwide, chances are good you’ll find an Allstate agent nearby. Some other well-known insurers don’t offer variable life at all. If you want to partner with a national brand with an A+ (Superior) rating from AM Best but prefer to meet face to face, take a close look at Allstate.

2. Principal

Part of the allure of a variable life insurance policy is the ability to combine life insurance coverage with long-term gains. But if circumstances change and you no longer need life insurance, one option may be to convert your policy to a variable annuity. 

With a variable life policy, you can access your cash value through loans or direct withdrawals but this can create tax events and you can’t set a fixed income schedule. An annuity conversion through Principal gives you more freedom to manage your cash value as you need, providing life insurance earlier in the policy and the option to provide income later.

As a worldwide provider of financial services, Principal has the know-how and staying power to help you choose the right financial solution.

  • Principal Financial
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    Age Requirements
    20 - 85
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3. Nationwide

With dozens of investment choices and policy types available, you’re nearly sure to find a policy that meets your needs with Nationwide if you’re in the market for a variable life policy. Five primary policy types offer options ranging from products designed to accumulate cash value that you can access in a number of ways to survivorship policies that provide protection for 2 people while keeping costs affordable.

Take comfort in knowing that Nationwide has been protecting its members for nearly 100 years and as a mutual insurance company, Nationwide is owned by its policyholders. AM Best, a leading ratings agency, recently affirmed Nationwide’s financial strength rating, awarding the company an A+ (Superior) rating again in December 2021.

  • Nationwide
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4. New York Life

Off-the-shelf products help to make decision-making easier, but the real power of a life insurance policy is often found in the riders that are available. A rider offers a way to customize your coverage to suit your family’s unique needs. Want a way to ensure a minimum amount of coverage? New York Life offers a rider for that. Need assurance that your policy won’t lapse if you become disabled? New York Life offers a rider for that, too. 

With 175 years of service, New York Life is one of the oldest and largest life insurance providers in the country. AM Best, Standard & Poor’s, Fitch and Moody’s have all awarded New York Life top ratings for financial strength.

5. Pacific Life

Because its cash value is based on investment performance, variable life insurance can have some risks. But what if your policy could guarantee a minimum accumulated value at the end of 15 years — or 30 years?

The Downside Protection Rider from Pacific Life promises to do just that, helping to ensure that your policy stays in force for as long as you need it. This is a rare find in VUL policies and helps ease the decision if the risks to cash value with other policies leave you feeling less than secure.

  • Pacific Life
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    Age Requirements
    18 - 65
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When Variable Life Insurance is Worth it

Variable life insurance is best for those looking for flexible policies as well as an investment option. It's best for those who can afford to pay potentially higher premiums as well as tolerate volatility in the market.

A variable life insurance policy is both life insurance and an investment. In the short term, it can serve as a way to provide life insurance affordably while also offering flexible payments. You’ll also be able to withdraw amounts you’ve contributed tax-free because the IRS treats these amounts as your investment basis. Cash value from investment growth (gains) can be withdrawn as a loan. The cash value of the policy becomes collateral and interest on the loan is paid back to your policy, assuming you pay back the loan. Many people don’t.

Variable life policies provide more flexibility than whole life policies, longer coverage than term policies, and can grow cash value faster than standard universal life policies. If you have extra money to put in if you hit an unexpected market lull, a variable life policy offers more freedom and can even increase the death benefit for your beneficiaries. 

In a perfect world, the policy’s risks diminish as you build cash value. However, we can’t always predict a market downturn, so a variable life policy is a better fit for those who can afford to put some more money into the policy if the cash value falls. Over time, a VUL can be an effective way to purchase cheap life insurance and offers some tax advantages, but there are also some risks.

When to Avoid Variable Life Insurance

A variable life policy isn’t a perfect fit for everyone. If money is tight or you suspect it could be at some point, there’s a risk that the policy could lapse if a market downturn causes the cash value to drop. Remember, the cost of insurance within these policies is based on your age but then subtracts the cash value. If the policy has little or no cash value, it may become too expensive to maintain. Also, it’s important to know that if your policy lapses with an outstanding loan, the loan proceeds could be taxable.

Instead, you may want to consider a term policy with a suitable life insurance payout, or even a whole life insurance policy that doesn’t put your cash value at risk. If you’re over age 50, a simplified policy that provides life insurance for seniors may be a better solution.

As with other mutual fund investments, fees can take a bite out of returns with VUL and even have an effect on cash value in a down year or flat year. If your interest in a variable life policy focuses on investment returns, there are less expensive ways to invest.

What is Variable Life Insurance?

A variable life insurance policy is a type of life insurance policy that benefits from an investment element within the policy that can grow cash value. The policy typically uses investments in mutual funds to provide tax-free growth in the policy. 

Variable life insurance is a financial instrument that allows you not only to have your money work for you but also to protect you and your family at the same time.

Variable life insurance is a permanent life insurance policy, meaning it lasts for the duration of your life. It differs from whole life insurance because variable life comes with not just a death benefit but a sub account that allows you to invest the money as you see fit. These sub accounts are very much like mutual funds.

Variable life insurance allows you to invest the money in these sub accounts. You can invest in stocks or bonds, equities or money markets. You make the decision. You can cover your family and strike it rich in the markets at the same time. But before you go betting the farm, understand that there are risks involved.

While a certain amount of your premiums go into a tax-deferred savings account, the rest is there for you to invest. This way, you’re never risking it all. The death benefit is still intact.

How Does Variable Life Insurance Work?

A variable life policy, also known as a variable universal life (VUL), has 2 primary elements that are important to understand. Your premiums fund 2 parts of your insurance contract.

First, VUL is a life insurance policy. The life insurance portion of the contract uses an annually renewable term life insurance policy. Because the term policy renews annually, variable life is grouped with other types of permanent life insurance. The coverage is designed to be in force for your whole life or until the maturity date, usually between age 100 and 121.

The 2nd element of your contract is the investment element which uses sub-accounts for investments. Typically, variable life insurance policies use mutual funds as a way to build cash value through these sub-accounts. Much as with other types of investments, this means there can be a downside in a falling market. However, variable life insurance policies don’t cap your gains, so banner years can offset market pullbacks. 

Because of this structure, the cash value in a variable life policy can go up — or it can go down. Other types of permanent life insurance can protect your downside, but they also cap your gains.

Your policy’s cash value also plays a role in your cost of insurance. In a policy that uses an annually renewable term policy, coverage can become expensive as you get older and risk increases. However, a VUL policy uses cash value to reduce the cost of insurance. The policy uses the death benefit minus the cash value to calculate what’s called the “net amount at risk.” The risk, in this case, refers to the amount the insurer might have to pay in a claim. In effect, the cash value reduces the cost of your coverage, that is, if you’ve built some cash value in your policy. 

As with other types of cash value life policies, you can access your cash value within a variable life policy in a number of ways, including loans or using the cash value to pay premiums.

Just because your money is inside your life insurance policy doesn’t mean you are free from risk. Yes, if you make bad decisions, you could lose money — even lose it all. Just like investing in the stock market as a whole, variable life insurance policies are not suited for short-term investments. They have their pros and cons.

Pros:

  • Money can grow faster than with a typical whole life policy.
  • Investments are directed by policyholders.
  • Death benefits are tax-free.

Cons:

  • Policyholders can lose money.
  • Substantial fees and expenses are possible.
  • Poor investment choices could mean decreased death benefits or even termination of the policy.

The question still remains — is life insurance worth it?

Types of Variable Life Insurance Explained

The 2 types of life insurance are permanent and term. If you’re wanting to cover yourself financially from the unexpected but are looking to pay a lower premium, then term life is the insurance for you. If you’d like to instead turn your life insurance policy into an investment vehicle, then permanent insurance is your ticket to ride.

You could go the boring route with a simple whole life policy that accrues interest over time. But what if you were able to make some of that money work for you at the same time? You can with variable life insurance.

To really understand variable life insurance, it's important to know the different types of variable life insurance available to you.

Variable Life Insurance

Variable life insurance is the standard variable policy that allows the policyholder not only to put money into a savings account for a death benefit but to invest the rest. The advantage of investing from within the insurance policy is that earnings are tax-deferred. Cash is accessible in the form of tax-free loans.

But another type of variable life insurance also is available, and that is universal variable life.

Universal Variable Life Insurance

Universal variable life works the same way as standard variable life. It allows policyholders to invest a certain portion of their premiums in investment vehicles like stocks and bonds. With universal life, however, there are even more options.

With a universal variable life policy, policyholders have the advantage of flexible premiums. They can decide the time and the amount they want to pay. They can even make all their payments in a lump sum.

Because policyholders can invest more money into their policies, it means they also can see greater returns — all tax-deferred, just like with a standard variable policy. Just like with a standard variable policy however, there is still the potential for losses.

Universal variable life offers:

  • More flexibility with premiums
  • Potential for great gains
  • Potential for greater losses

If you’re a confident investor, universal variable life gives you the option to make more of your own decisions.

How to Compare Variable Life Insurance

When choosing variable life insurance, take into account the same things you would when buying any insurance policy. Look for:

  • Premiums
  • Death benefit
  • Credit rating
  • Reputation
  • Products

While not every life insurance company offers a variable option, compare plans from our favorite providers to find the best life insurance product for you.

How to Buy Variable Life Insurance

Same goes for buying a policy. Of course you want the lowest premiums, but at the same time make sure that the company is reputable. Make a comparison between the price of premiums and the benefits received.

Once you’ve decided which company is right for you, find a local agent or complete the purchase process by phone. You can even buy your policy online. If you don’t want to go through the rigors of taking medical tests, find out the maximum debt benefit for “no medical exam required.”

Make sure you don’t underbuy or overbuy. Assess your own financial situation and needs. If you’re not in a high-earner category, don’t get a $5 million policy. By the same token, if you have lots of expenses, don’t underbuy and get just $100,000 in coverage. Be smart — purchase a policy that fits your lifestyle.

Choosing the Best Variable Life Insurance

For many households, an affordable term policy may be the best way to protect loved ones. Arguably, temporary protection has risks as well. The vast majority of term policies never pay a claim. Variable life can offer protection that lasts your whole life while offering the freedom to use your cash value growth as you choose. If you’re not sure which type of policy is best, you can start with a free quote. Protection for your family is probably more affordable than you think.

Frequently Asked Questions

Q
What’s the difference between whole life and variable life insurance?
A

A standard whole life insurance policy applies your premiums toward a savings account that accrues over time and gains cash value. There is no risk for the policyholder. 

In a variable life insurance policy, the policyholder has access to a sub account where a certain percentage of the premiums are available for investment in vehicles like stocks and bonds. In a variable life insurance policy, the policyholder makes investment decisions and assumes risk.

 

Q
What’s the difference between a variable and a universal variable life insurance policy?
A

Variable life policies allow policyholders to invest a certain percentage of their premiums into stocks, bonds, equities and more. The difference between a standard and a universal variable policy is that a universal allows for more flexible premiums. They can even be paid all at once.

Methodology

Benzinga crafted a specific methodology to rank life insurance. To see a comprehensive breakdown of our methodology, please visit our Life Insurance Methodology page.