What is Variable Life Insurance?

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Contributor, Benzinga
February 7, 2022

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Variable life insurance, also known as variable appreciable life, is a more flexible type of policy that allows your cash value to grow through investments. With variable life insurance, not only do you get to choose how much cash value you have, you get the option of investing it as you see fit.

Variable life insurance allows you to invest your money through sub-accounts in financial vehicles like mutual funds. A variable life insurance policy gives you the ability to see your cash value grow while at the same time having the protection of a life insurance policy.

What is Variable Life Insurance?

Much like whole life, variable life insurance is a type of permanent insurance, but with an added twist. All variable life insurance policies consist of three main items:

  • Death benefit
  • Sub-accounts
  • Cash value

Like whole life, a variable life insurance policy has a cash value. Unlike whole life, variable life allows you to transfer excess cash into a sub-account and invest the money, usually in mutual funds or something similar. 

There are risks, however. If your investments perform poorly, you could lose cash value in your account. Unlike a standard whole life policy, your premiums and death benefit are flexible.

The cash value can be invested in various financial vehicles, including:

  • Mutual funds
  • Index funds
  • Equities
  • Money market funds
  • Bonds

One of the great features of a variable life insurance policy is that you have the option of skipping premium payments if the value in your cash account is sufficient to cover those payments. You can even stop making payments altogether. 

Like the cash value in a whole life policy, earnings in variable life insurance are tax-deferred. You can also borrow money from your cash account, tax free.

Variable life insurance and the risks involved

While having life insurance and being able to use the cash value to invest sounds lucrative on the surface, there is also the potential for loss. You don’t have to be a professional investor to take advantage of a variable life insurance policy, but you should at the very least be well-versed in investments. 

If you want to invest your cash value sub-account in the stock market, make sure you know something about investing in the stock market. Remember, while there is potential for gains, if something should go wrong, you can lose your money as well.

There is no guarantee like with a whole life policy. Invariably, there is the potential for loss. Worst case scenario: If you lose enough cash value that you can’t pay your premiums anymore, you could lose coverage altogether. 

How Does Variable Life Insurance Work?

So how does variable life insurance work? Try this real-world example:

Let’s say you have a variable life insurance premium of $600 per month, of which $400 goes into your cash value account. You get the option of how you want to invest the money. 

If over the next 10 years your cash account grows to now have a value of $4,000, you have the option of:

  • Leaving the money in the account
  • Withdrawing a portion of the cash value
  • Paying down your premiums
  • Adding to the death benefit
  • Taking out a loan

The value of the account of course depends on the performance of your investments. The example above accounts for your options if your cash value accrues, but if it declines you could be required to supplement your premiums. 

Remember, one way or another your premiums have to get paid, if you want your life insurance policy to remain in force.

Pros and Cons of Variable Life Insurance

Unlike whole life insurance where the insurance company chooses your investments and there is no risk involved, a variable life insurance policy has the ability to increase or decrease in value, depending on the performance of your investments. Let’s weigh the benefits and drawbacks.


  1. Flexibility: With variable life insurance, you get to choose how much money you want applied towards your cash value. You can increase or decrease premium payments depending on that cash value, and even increase the amount of your death benefit.
  2. Cash value: A variable life insurance policy gives you the opportunity to increase your cash value through investments. If the stock market is up, so too is your cash value. Whole life policies have limited opportunity to the upside.
  3. Death benefit: Variable life insurance, while a great investment vehicle with tax benefits, is primarily an insurance policy. The death benefit will one day replace you as your family’s primary wage earner, and is the whole reason for buying insurance in the first place.
  4. Tax advantages: While you could make more money just straight-up investing your money in the market, you won’t get the same tax advantages a variable life insurance policy offers. All gains are tax-deferred. And remember, the tax benefit is tax-free.
  5. Policy loans: One of the great features of the variable life policy is that you don’t have to withdraw your cash value to have access to your cash. You can take out a loan instead. The advantage to this is that your money doesn’t have to stop working for you. As well, all loans are tax-free as they are not income.


  1. Risk of loss: While there is potential for higher gains, your biggest risk is that you can lose money too. Remember, if you don’t have enough cash value to pay your premiums, you could lose coverage altogether.
  2. More expensive: Variable life insurance is more expensive than traditional whole or term life. Variable policies come with policy charges and management fees, just like other investment accounts.
  3. Flexibility: Flexibility is not always a good thing. The downside to flexible rates means that your premiums can also go up. If your premiums go up too much, that could mean you can’t make your payments anymore, which in turn means you can lose coverage. If you’re not comfortable with investing your own money, or you don’t have sufficient backup to bridge the difference, then a variable life insurance policy may not be the best choice for you.

How to Buy Variable Life Insurance

Most insurance companies that offer whole life insurance offer variable policies as well. You can buy them online or even from an agent. There are literally dozens of reputable companies out there.

The question when purchasing a variable life insurance policy isn’t so much as how but with whom and for how much. When purchasing a life insurance policy, especially one with such a weighted cash value, it’s important to know your money’s going to be there when you need it. Of course it’s okay to price shop, but make sure the company you choose is a trusted one.

As far as how much insurance you need, that depends upon your individual financial situation. Don’t buy a $5 million policy if you’re not in a high tax bracket. Why would you need that much? 

Decide upon an amount that’s consistent with the amount you earn. Remember, the death benefit is going to replace you as the primary wage source after you're gone, so make sure it’s enough, but don’t go overboard.

Compare Variable Life Insurance

It’s always important to compare policies and seek out quotes from multiple insurance providers. Get started now with the top picks from Benzinga.

Is a Variable Life Insurance Policy the Right Choice for You?

While variable life insurance policies offer great potential for increased cash value, they’re not for everyone. You don’t have to be a financial professional to make it work for you, but you should at least know your way around investing. 

The portions of your premiums that go into your cash value account are subject to losses as well as gains, and if you’re not ready you may soon find yourself underwater. If you’re comfortable with investing your money, however, and able to patch-loss at any given time, variable life insurance policies give you the ability to see your cash value grow substantially, not just sit there like those boring old policies of the past.

Frequently Asked Questions


What is the difference between whole and variable life insurance?


While both whole and variable life insurance policies have a cash value and can accrue in value over time, investments in a whole life policy are decided upon by the insurance company and therefore bear no risk. While this sounds safe, potential for the upside is limited. With a variable life insurance policy, however, the policyholder establishes a sub-account where part of the premiums can be investmented. This allows for greater potential to the upside, while at the same carrying with it inherent risk.


Does variable life insurance expire?


Variable life insurance is a type of permanent insurance. It never expires, it stays with you your entire life.  While variable life insurance carries with it a cash value and sub-accounts for investing your money, it’s important to remember that it is primarily a life insurance policy. The only way a variable life insurance policy can be canceled is if you fail to make your premium payments.


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