Variable Life Insurance: What Is It? How Does It Work?

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Understanding Variable Life Insurance

What is Variable Life Insurance?

At its core, variable life insurance is a permanent product with an investment component. Your premium payments are not just tucked away for your beneficiaries. Instead, they are partially allocated to various investment accounts of your choice, typically mutual funds. The cash value and death benefits are not fixed but vary based on the performance of these investments. This structure gives “variable” life insurance its name and distinctive character.

How Does Variable Life Insurance Work?

When you purchase a variable life insurance policy, your premiums are divided between the cost of insurance and your chosen investment options. The insurer deducts administrative fees and mortality charges, with the remaining funds invested in separate accounts. These accounts function similarly to mutual funds, offering a range of investment choices that reflect your personal risk preference and financial objectives.

Your policy’s cash value and death benefit will vary depending on the performance of your investments. Exceptional investment returns can significantly boost your policy’s benefits, while poor performance may require additional premium payments to maintain the policy.

The Pros and Cons


  • Potential for substantial cash value growth based on investment returns.
  • Tax-deferred earnings are not taxed on gains until you withdraw funds.
  • Flexible premium options, particularly with VUL.
  • Opportunity to diversify investments.


  • Potential for loss of cash value if investments perform poorly.
  • Investment risks are shouldered by the policyholder.
  • Requires active management and a good understanding of investment vehicles.
  • Higher fees due to management and administrative costs.
Variable Life Insurance

The Types of Variable Life Insurance

Delving deeper, we encounter several branches of variable policies, each designed to suit diverse financial landscapes:

  • Variable Universal Life Insurance (VUL): A hybrid model that combines the investment feature of standard variable policies with the flexibility of universal life insurance. You have the liberty to adjust premiums and death benefits and direct the cash value investment into different channels.
  • Variable Whole Life Insurance (VWL): This policy offers more predictability with fixed premiums and a guaranteed minimum death benefit. However, it still allows your cash value to grow based on the performance of investments.
  • Variable Term Life Insurance (VTL): Less common in the marketplace, VTL provides coverage for a certain period with adjustable premiums based on investment returns. It’s a more affordable entry point into variable life insurance but doesn’t build cash value.
FeaturesVariable Universal LifeVariable Whole LifeVariable Term Life
Coverage DurationPermanentPermanentTemporary (fixed term)
Cash Value AccumulationYesYesNo
Investment OptionsYes (sub-accounts similar to mutual funds)Yes (sub-accounts similar to mutual funds)No (generally does not accumulate cash value)
Premium FlexibilityYes (adjustable premiums)No (fixed premiums)Yes/No (depends on specific policy terms)
Death BenefitAdjustableGuaranteed minimum (can increase based on cash value)Fixed (does not increase based on cash value)
Risk LevelHigher (due to investment component)Moderate (cash value depends on investment performance, but death benefit is guaranteed)Low (no investment component)
CostHigher (due to investment options and flexibility)High (fixed premiums, investment management)Lower (no cash value or investment management)
Management InvolvementHigher (policyholder may select investment options)Moderate (limited investment options)Low (no investment choices)
Variable Universal Life Insurance (Vul)

How We Can Help

At The Annuity Expert, we understand that navigating the complexities of variable life insurance can be daunting. With 15 years of experience as an insurance agency, annuity broker, and retirement planner, we are committed to finding the best solutions at the lowest costs for our clients.

You may be concerned about managing investment risks or the high costs associated with variable life insurance. Perhaps you’re unsure how to balance your need for life insurance coverage with your desire for investment growth. We understand these challenges and are here to help.

By working with us, you will gain access to expert advice tailored to your unique financial situation. We believe in empowering you with knowledge and guiding you through every step of the process, ensuring you make informed decisions that align with your long-term goals.

What We Recommend

Step 1: Initial Consultation

  • What Happens: During the first consultation, we will discuss your financial goals, risk tolerance, and current financial situation.
  • Main Benefit: You will receive personalized advice and a clear understanding of how variable life insurance can fit into your overall financial strategy.

Step 2: Policy Selection and Customization

  • What Happens: We will help you choose the right variable life insurance policy that aligns with your needs. We will explain the various investment options and help you customize your policy.
  • Main Benefit: You will have a policy tailored to your financial goals, with investments that match your risk tolerance.

Step 3: Ongoing Support and Management

  • What Happens: We will provide ongoing support and review your policy’s performance regularly, making adjustments as needed.
  • Main Benefit: You will have peace of mind knowing that your policy is being actively managed to optimize growth and ensure it continues to meet your needs.

Features and Benefits:

  • Personalized Advice: Ensures your policy fits your unique financial goals.
  • Expert Policy Management: Maximizes growth potential while mitigating risks.
  • Regular Reviews: Keeps your policy aligned with changing financial circumstances.
  • Access to Diverse Investments: Offers potential for significant cash value growth.

Overcoming Common Objections

  • Concern: High costs and fees.
    • Response: We will ensure you understand all associated costs upfront and work to find the most cost-effective policy options.
  • Concern: Investment risks.
    • Response: Our expertise will help you choose investments that match your risk tolerance, providing a balanced approach to growth and security.

The Impact of Working With Us

Failing to address your insurance and investment needs can leave you vulnerable to financial instability and missed opportunities for growth. Working with us ensures you receive comprehensive support and expertise, leading to financial growth, security, and peace of mind. You will experience confidence in your financial future and satisfaction in knowing your loved ones are protected.

Contact us today for free advice or a quote and take the first step towards securing your financial future.

Variable Life Insurance Rates

Contact us if you need help purchasing a life insurance policy. The service is free of charge.

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Frequently Asked Questions

Can you lose money in a variable life insurance policy?

Yes, you can lose money in a variable life insurance policy if the invested portion performs poorly, reducing the cash value and potentially the death benefit.

Why might a variable universal life (VUL) insurance be considered a bad investment?

Variable universal life insurance can be seen as a less favorable investment due to its exposure to market volatility and the high costs associated with the insurance component. The investment portion of a VUL is tied to market performance, which means the cash value can fluctuate widely depending on market conditions. Additionally, the costs for the insurance and administrative fees can be quite high, reducing the overall returns on the investment portion. This combination makes it riskier and potentially less profitable compared to other more stable investment options.

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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