What is "variable life insurance", and what are its advantages and disadvantages?
A variable universal life is where the insurance companies have partnered up, so to speak, with various mutual fund managers like Fidelity, Franklin, Janus, Strong, and Neuberger, and they ask those fund managers to make funds available for their life insurance policyholders, and the insured is now able to invest the cash value, not into the surplus and the strength of the insurance company, but into outside mutual fund-like vehicles. If the insurance vehicles, and these funds do really well over time, the person could possibly earn a lot more return than a 4% return. The negative of variable life insurance is that, unfortunately, sometimes the stock market goes way down. If your cash values go from $40,000 to $20,000 in one week you will be very upset. So, a lot of people should not buy this kind of insurance if they don't understand the stock market. For a young person it's probably an OK product because you have many years for the stock market to probably do well. However, for somebody who's 70 or 80 this policy would probably be very uncomfortable, and probably would be almost unethical and illegal to sell it to them, because the insurance industry strictly regulates variable life insurance policies. They're worried that somebody who is 70 years old could have a downswing in the market and then the policy is lapsed, and the insurance company obviously will get hit with a lawsuit. The insurance companies are very careful on who they allow to buy this type of insurance.
