Variable Life Insurance is a permanent universal life policy that has a death benefit as long as the cash value and premiums are sufficient to pay the increasing cost per-thousand, while the premiums and cash value have the option of being invested in separate accounts which behave much like mutual funds.
Often the policy-owner has a choice of many investment options, and can construct an entire portfolio within the policy.
These provide a benefit in a few ways: not only is there death benefit protection that is most substantial while the policy-owner is younger, but also the cash value account is able to grow tax-deferred, and the cash value can be withdrawn as loans which sometimes have no net interest charge but avoid income taxes.
This may sound better than it turns out to be, considering the cost of insurance, but it can also be better than some opponents realize. The difference between the cash value of the death benefit is known as the net amount at risk to the insurance company.
Fortunately these policies are flexible such that the insured can lower the death benefit and the net amount at risk as the cost of the insurance rises, as is the case with universal life policies. They are only flexible to a point, however, and they are sometimes known in the industry as corridor insurance, since there is a specific range, or corridor, in which the cash value, death benefit, and premiums can be in relation to one another.
Companies now are increasingly likely to pay credits to the insured after the keeping the policy for however many years, which can lower the insurance costs by a fraction of a percent.
The benefit of these policies to the very wealthy is that there is no cap on contributions and no cap on income for eligibility. If a wealthy person wants to put $1,000,000 a year into a variable life policy, and let it grow tax deferred, and take money out tax-free, that option is available to him or her.
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