If you’ve decided to get a whole, or permanent, life insurance policy then you are going to have a policy that not only pays out a death benefit, but also accrues cash values which can earn interest and accumulate. Whole life policies aren’t a singular breed; there are many different types that you can get and one of the most popular is the variable life insurance policy. What is a variable life insurance policy?
A variable life insurance policy is one that has its cash values invested in funds that the life insurance company sets up. These funds are created from various underlying investments like bonds, money markets, and stocks. The funds may be created based on risk tolerance, type of investment or even for the purpose of diversification.
The important note here is the word variable. That word means that your cash values will perform as any other investment would, and means they may increase and gain in value or they may decrease in value. This can happen throughout the life of your policy, depending on how the underlying investments perform in the fund that you’ve chosen.
Like other permanent policies, the variable life needs to be underwritten only once—when you first apply (unless you allow it to lapse through nonpayment of premium and want to reinstate it). The death benefit and premiums are fixed for the life of the policy and, as long as you pay your premiums, you can expect your beneficiaries to receive the death benefit (normal exceptions including material misrepresentation and two-year exclusions apply).
Can I switch funds?
If you choose a fund when you first take out the policy that you feel is no longer right for you, then you can switch funds. It is important to note that even if you switch funds, any losses you experience will not be gained back upon switching, although your fund could increase in value giving you the opportunity to gain it back again. As you age and your tolerance for risk reduces, you may find it a good strategy to switch from aggressive funds with high historical returns to less aggressive funds.
How does this affect my death benefit?
If you lose money in your cash value, that is held separate from your death benefit and won’t affect any payout to your beneficiaries. If you take a loan from the cash value and do not pay it back, then your death benefit may be reduced.
A variable life insurance policy has more risk than a fixed policy, but it also has the potential for more flexibility and higher cash values. It is important to work with your agent and weigh the benefits and drawbacks of variable life against your personal goals.
Make sure you have the best possible option for your Oklahoma City Life Insurance policy with Alexander & Strunk today!
