If you’re like most people, you understand the importance of life insurance for protecting your family and you’re ready to commit to a really good policy. However, you’ve heard a little bit about variable life insurance, but before you purchase you’d like to learn what it is and if it might be a good option. Taking the time to familiarize yourself with the details surrounding Illinois variable life insurance will help you decide if this type of insurance is the most appropriate solution for you and your family.
What is Variable Life Insurance?
Variable life insurance is a type of permanent life insurance that has a strong investment component. Similar to whole life insurance, it builds cash value, except it’s invested in a variety of separate accounts available only through the insurance policy. With variable life insurance, both the death benefit and the cash value fluctuate according to how well these investments perform. Typical variable life insurance policies have more than fifty or so sub accounts to choose from. As a policy holder, you have the option of choosing which accounts to invest the money.
How Does Illinois Variable Life Insurance Work?
Basically, a portion of your monthly premium goes towards the insurance company’s investment fund allowing you to provide investment profits, tax free to your beneficiaries. Typically, there are several investment opportunities to choose from including mutual funds, stocks, bonds, money market funds etc. Any interest that your account earns is added to your cash value.
However, while you control the investment of the policy’s cash value, there is still significant risk- as the investment changes, so will the cash value. In other words, when your investments grow, the cash value will grow as well. However, if investments drop, so may the cash value. This can be quite profitable, but can also be devastating if the death benefit and cash value decrease on account of not so good performance of your investment portfolio. Nevertheless, some variable life insurance policies have a built in guaranteed cash value, regardless of any decrease in investment performance. Be prepared, because the premiums are generally much higher.
Illinois variable life insurance may be the right choice for you if you are comfortable making investment decisions and enjoy active and frequent participation. Most often, premiums can be fixed or flexible, depending on the particular policy you choose.
On account of the investment nature of variable insurance, separate accounts are classified as securities by the U. S. Securities and Exchange Commission (SEC) and are subject to regulation as well as that of the state Department of Insurance. All Illinois variable life insurance providers must be in compliance with these security regulations. In fact, every insurance policy must be registered with the SEC. Insurance providers must be in accordance with SEC laws and Illinois insurance laws. Both of these regulations exist to protect you, the consumer.
Advantages of Variable Life Insurance
In Illinois, variable life insurance is eligible for tax advantages per the United States Internal Revenue Code. The cash value that is earned by a variable policy can earn investment returns without incurring current income tax- as long as it fits the definition of a life insurance policy. This is a tremendous advantage for those who are planning on using the cash value as a means to fund a child’s education or retirement.
Variable life insurance can be a great opportunity to provide financial protection for loved ones that they can depend on in the future. On account of the tax deferred nature of a variable policy, there is an attractive tax advantage. However as with most investments, there is significant risk. Make certain that you are aware of these risks and comfortable with assuming them. If you are, Illinois variable life insurance may be the right choice for you.