At first you might think that this is a repeat of the last entry, Variable Universal Life. However, there is a subtle yet distinct difference. In this new form of Life Insurance, there is not the term “Universal.” What this means is that premiums are fixed and not flexible. Thus in Variable Life Insurance you have fixed, set, regular premium payments. Variable Life also has a fixed, guaranteed death benefit. Not to confuse the issue but also with Variable Life, you can skip the premium payments depending on the cash value accumulations. There are other similarities.
To begin with, the Variable Life form does have separate sub-accounts just as its’ counterpart Variable Universal Life. They act very much like Mutual Funds. In fact one of the first criticisms of Variable Life was how can a Life Insurance company manage securities? To put it succinctly, it cannot. So both forms have entered into a partnership with mutual fund managers to do the actual day-to-day investing for their clients. Perhaps the best example would be Variable Life Company using Fidelity to manage their investments.
Another similarity is that both Variable Life and Variable Universal Life have the general account and the sub-account. Keep in mind the sub-accounts are where the investments are. The general account in both is subject to claims of all the company’s creditors. The impact to you is that you the investor/policy owner should invest in only a life insurance company that has solid credit ratings. The general account is where the Life Insurance makes its own investments. They usually invest if fixed securities such as real estate, government backed mortgages and fixed, guaranteed assets.
Perhaps the best way to describe Variable Life is that it is very similar to Whole Life Insurance but there are sub-accounts where you can invest in various forms of securities. The Variable UNIVERSAL Life is much more flexible in it’s premiums because it has a mix of TERM Insurance.
So which one would be best for funding of your Business Succession plan? To help clarify the issue I would offer these guidelines.
1. If you can afford a higher premium with an increasing Death Benefit, I would use Variable Life.
2. If you want a lower premium with a bit more flexibility, the Variable Universal Life Insurance would be the way to go.
Next we will discuss the very new and unique form Variable Universal Life. Stay tuned.