Variable life insurance
Variable life insurance is permanent life insurance whose cash value, and sometimes its death benefit, rises or falls with the investments you choose in the insurer's separate accounts. Charges come out of each premium before the rest is invested, and any guaranteed minimum death benefit depends on paying required premiums and the policy's loan and withdrawal terms.
Also called: variable universal life insurance, variable-universal life insurance
A variable life policy puts part of every premium into investment options, so the value you see on an annual statement can go up or down. Investment losses, policy charges, loans, and withdrawals all reduce cash value, and if too little value remains to pay the charges, the policy can lapse. The policy, its prospectus, the illustration, and the annual statement set the details for your contract.
How premiums turn into account value
Each premium first pays insurance costs and fees, and the remainder is allocated among the investment options you select. A separate account is an insurer-maintained account that holds the assets tied to investment-linked products, and its performance determines the policy values, according to the NAIC (opens in a new tab).
Investor.gov (opens in a new tab) works through a $100,000 premium split evenly between a stock fund and a bond fund.
Hover or tap a row to highlight it.
| Allocation | Amount invested | Return | Value after one year |
|---|---|---|---|
| Stock fund | $50,000 | 10% | $55,000 |
| Bond fund | $50,000 | 5% | $52,500 |
| Total | $100,000 | 7.5% | $107,500 |
The account grew by $7,500 before charges. Fees, sales charges, mortality and expense charges, and other deductions come out of that figure, so the amount left is smaller. When the insured dies, the beneficiary receives the policy's death benefit, which is not automatically the account value.
Policy designs and features, and what each changes
The contract's structure decides how much flexibility you have and how exposed the death benefit is to the market.
- Scheduled-premium variable life. Premiums follow a set schedule. In New York, these policies must provide a minimum death benefit, generally at least the initial face amount while premiums are duly paid, subject to policy provisions, under 11 NYCRR § 54.6 (opens in a new tab).
- Flexible-premium variable universal life. You can vary premiums as long as enough value remains to pay charges. When cash value runs short, the policy can lapse.
- Separate-account investment options. These are commonly stock, bond, money-market, mutual-fund, or real-estate pools. Their performance changes the policy value and may change the death benefit.
- Fixed-account allocation. Where offered, it credits a guaranteed rate. Investor.gov uses 3% a year as an illustration; the actual rate is set by each policy.
- Minimum death benefit. It holds only under the contract's conditions, including required premiums and the treatment of loans and withdrawals.
- Optional riders. Disability, accidental death, or guaranteed-insurability riders can add charges or change the payout.
- Loans, withdrawals, and surrender charges. Loans and withdrawals reduce cash value and may reduce the death benefit or cause lapse. Surrender charges reduce proceeds during the surrender period.
Variable universal life is a flexible-premium form of variable life, and New York's variable life product outline (opens in a new tab) includes it in the same filing category. A variable annuity is a different product: an annuity contract built for accumulation and later income, not life insurance, according to Investor.gov's annuity overview (opens in a new tab).
Where the term shows up
Variable life is a life insurance term, covering traditional variable life and variable universal life. You see it on a quote, application, prospectus, policy cover page, policy specifications, separate-account disclosures, annual statement, renewal notice, illustration, replacement paperwork, and claim letters. Inside the policy, it sits in the description, benefits, investment-account provisions, charges, surrender terms, loans, and conditions.
The prospectus alone does not show the amount of insurance purchased or every fee payable, so read the policy materials alongside it. Substantial fees, expenses, and tax consequences also make variable life a poor fit as a short-term savings vehicle, according to the Investor.gov bulletin on variable life (opens in a new tab).
What Connecticut and New York require
A Connecticut life contract with benefits that vary with investment experience must state that the dollar amount will vary, describe how variable benefits are determined, and say on its first page that benefits are on a variable basis, under Conn. Gen. Stat. § 38a-433 (opens in a new tab). The form itself must be approved before delivery under Conn. Gen. Stat. § 38a-430 (opens in a new tab).
New York regulates variable life through Regulation 77. A variable life policy is defined in 11 NYCRR § 54.1 (opens in a new tab), and 11 NYCRR § 54.6 (opens in a new tab) requires prominent disclosure that death benefits and policy values may increase or decrease, plus a 10-day return right with a premium refund. Insurers must send an annual report, generally within 60 days after each policy anniversary, showing cash surrender value, policy value, death benefit, withdrawals, loans, and interest charges, under 11 NYCRR § 54.11 (opens in a new tab). In other states, confirm the rules with the insurance department where the policy was delivered.
Questions to ask an agent or insurer
- What is the guaranteed minimum death benefit, and under what premium, loan, and withdrawal conditions does it apply? The variable portion can change with investment results.
- What is every premium charge, mortality and expense charge, cost-of-insurance charge, administration fee, fund expense, surrender charge, loan interest charge, and transaction fee? Charges reduce policy value and can require extra premiums.
- What premium keeps the policy in force if investments perform poorly? Insufficient cash value can cause lapse.
- Which investment options are available, how are premiums allocated, and can I change the allocation? Separate-account performance drives policy value and possibly the death benefit.
- What do the guaranteed and nonguaranteed illustrations show at different returns, and what happens if I withdraw or borrow? Illustrations, loans, and withdrawals all affect future values and lapse risk.
Frequently asked questions
These come up most when someone is reading a statement or comparing quotes.
Can variable life insurance lose money?
Yes. Investment losses and charges can lower cash value, and additional premiums may be needed to keep the policy from lapsing. A fixed-account allocation, where available, credits a guaranteed rate instead of market returns.
Is the death benefit guaranteed?
A contract may provide a guaranteed minimum death benefit, subject to conditions such as required premiums and how loans or withdrawals are treated. Any amount above that minimum can vary with the separate accounts.
What happens if I stop paying premiums?
It depends on the design. On a flexible-premium policy, coverage continues only while cash value can pay the charges. On a scheduled-premium policy, a minimum death benefit generally depends on premiums being paid as scheduled.
Can I borrow from or withdraw cash from the policy?
Many policies permit loans or partial withdrawals. They can reduce cash value or the death benefit, and unpaid loan interest can contribute to lapse, so the contract's terms on availability and charges matter before you act.