Variable life insurance is permanent life insurance where the amounts of cash value and death benefits are variable and depend on the success of the investments made. Variable life insurance is similar to whole life insurance, except the cash value and/or the death benefits are not fixed; they vary depending on the results of the investments made from the owner’s separate account.

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The owner of the policy chooses broadly how the money is invested. The insurance company will offer different types of investment accounts to choose from such as stock funds, bond funds, or money market funds. The individual investment accounts are managed by either the insurance company itself, or by an outside investment firm. The goal of variable life insurance is for the death benefits to keep up with the rate of inflation.

Care should be taken when purchasing a variable life insurance policy. If the policy lapses due to poor investment performance or unpaid outstanding loans, unfavorable tax consequences may result.

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