Variable Life Insurance

A variable life insurance policy is a contract between the insured and the insurance company. It is a permanent life insurance policy with an investment component.

Description:

Life protection and investment options are the primary purposes for buying a life insurance policy. Though it also gives you a tax benefit³, buying it as life security is the main motive.

A life insurance policy with the double benefit of life cover and investment is variable life insurance. But the returns on the investment are declared by the insurance company every year.

The variable life insurance policy is suitable for those with specific needs or who want to fulfil their short-term goals. So when the goal changes, the death benefit and the savings under the policy can change.

Variable life insurance plan (VLIP) involves investment risks. It is further divided into two types that include participating and non-participating insurance policies. Participating policy comes with guaranteed⁴ returns whereas non-participating VLIP offers a bonus every year.

Example:

Muskan purchased a variable life insurance policy with an initial premium of Rs.1 lakh. The sum assured under the policy was Rs.50 lakhs.

As per the guidelines, about 50% of the premium goes in the investment and the remaining portion is for the life protection. Under variable life insurance policy, the insurer keeps every information about investment transparent. They allocated 50% of the premium for investment to the MNC fund and 50% of the same in the stock fund.

After one year of investment, the MNC fund gave a 10% return and the stock fund offered 5% return. At the end of the year, the account value has Rs.27,500/- return and Rs.26,250/- in the stock fund.