It is important to understand the characteristics of variable life insurance products before investing. Each of these products offers a saving feature to their policyholders. Aside from insurance company fees, the premiums go into the balance of the policy. This allows a growing cash value to the policy. Many use this to build savings for particular situations such as college tuition or saving for a house. The cash value can grow without taxes and this allows the amount to grow at a faster rate than many other types of investments. This makes it an attractive option for some.
Another important characteristic of variable life insurance products is the policyholder has control over where investment the cash value of the policy goes. Most of these products offer a wide range of investment options to the policyholders. These investments include a wide range of stocks, bonds, mutual funds, and money markets. This allows the policyholder to distribute the cash value over a range of investments to minimize risk and maximize return. The policies also allow the policyholder to change these investments throughout the life of the policy.
One of the more significant characteristics is the ability to surrender it for cash value. Many choose to use these policies to build cash value over a certain number of years while keeping the death benefit coverage. That provides the death benefit necessary while building the investment. If the named insured dies, the cash value comes due. But, if the named insured does not die, the policyholder can surrender the policy at some point and get the cash value of the policy. This is a good option for those that want coverage while their children are dependent but want to have the money once the children are grown.
Another characteristic is the management fees. Because the policyholder can indicate their investment preferences, the insurance company must handle the transactions. In exchange for that, the insurance company will charge management fees. That comes out of the premiums going into the investment. It is important to understand what those fees can be before you invest in one of these policies. The rates vary considerably from one company to the next. Finding the right investment vehicle is important. Use the expertise of insurance and tax professionals to decide which one is your best option. With careful evaluation, you can find an insurance product to fit into your financial planning.
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