Variable Life Insurance
A permanent life insurance policy whose cash value is invested in sub-accounts and fluctuates with market performance.
What is Variable Life Insurance?
Variable life insurance is a form of permanent life insurance in which the policy's cash value is allocated among investment sub-accounts — similar to mutual funds — that the policyholder selects. Because returns depend on market performance, the cash value and, in some policy designs, the death benefit can increase or decrease over time. Variable life policies carry a guaranteed minimum death benefit regardless of investment performance. Because the policy involves securities, it is regulated as both an insurance product and a security, and agents selling it must hold FINRA-registered securities licenses. Variable life offers greater growth potential than whole life but also investment risk that can erode the cash value.
Example
A policyholder invests the cash value of a variable life policy in an equity sub-account. During a strong bull market, the cash value grows from $80,000 to $140,000, and the policy's adjustable death benefit increases proportionally. When markets fall 30%, the cash value drops to $98,000, below what the policyholder had contributed — illustrating the two-sided investment risk absent from traditional whole life policies.
Source: FINRA — Variable Life Insurance