Variable life insurance
Variable life insurance is one of the cash value life insurances. Life insurance in which the insured amount varies with the actual performance of the use of funds during the insurance period. Allows policyholders to invest the cash value of the policy in a stock, bond, or money market portfolio. Investors can switch between different portfolios on their own or rely on the company’s professional money market managers to make investment decisions. The annual premium for this type of insurance is fixed, but a portion of it is allocated to the investment portfolio. The amount of policy cash value and death benefit depends on the investment outcome of the segregated account selected by the policyholder. There is no guarantee of cash value or death benefit, both of which depend on the performance of the selected investment portfolio. Some insurance companies guarantee a minimum death benefit if the policyholder pays additional premiums. If the portfolio performs well, the cash value in the policy increases significantly, and the policyholder can put out a portion of the cash to buy additional coverage. If the policyholder chooses a portfolio with poor performance, the performance of the policy will also be poor, and even the policy will be terminated. Gains on variable life insurance are tax-deferred until distributed, and only the income over the premium is taxed.
First of all, the premium payment is the same as that of traditional life insurance products, which is fixed, but the insurance amount of the policy can be changed under the condition that a minimum limit is guaranteed. This is how variable life insurance gets its name. The change in the amount of variable life insurance coverage depends on the investment benefits of the investment segregated account selected by the policyholder.
Second, variable life insurance usually opens a separate account (a separate account is called a separate account in the United States, a separate account in Canada, and an investment account in China). Within a life insurance company, the assets corresponding to the policy liability reserve of traditional whole life insurance must be credited to the insurance company’s comprehensive investment account. To obtain a relatively stable return on assets, the insurance company invests it in a series of relatively Safe items; and for the assets corresponding to the policy liability reserve of variable life insurance, a separate account or multiple separate sub-accounts with different income and risk characteristics are opened separately, which are freely chosen by the policyholder or policy owner, and the insurance The company itself or entrusted fund company to operate professionally. Premiums paid by the policyholder are deposited into the selected investment segregated account after deducting the cost and death benefit share.
Third, the cash value of a variable life insurance policy varies with the investment performance of the investment portfolio selected by the client, and the cash value of the policy at a certain moment is determined by the market value.
In the death benefit of this kind of policy, part of it is the fixed minimum death benefit agreed in the policy, and part is the investment income of its separate account. The insurer continuously adjusts the asset portfolio of the investment segregated account according to the asset utilization status; the policy owner can also freely choose and adjust the portfolio among various investment products at least once a year. If the investment income of the selected investment segregated account is high, the cash value of the policy is high, and the death insurance premium, that is, the insurance amount, is also high; otherwise, the cash value of the policy is low, and the death insurance premium, that is, the insurance amount, is also low.
In addition to the insurance protection function of variable life insurance products, the most notable feature is that it realizes the investment function through the investment fund of the independent investment account. The customer’s premiums enter the investment account, and the investment operation is carried out by the insurance company or the investment experts of the entrusted fund company. The investment income is all owned by the customer, but the investment account does not promise investment income. The investment risk is borne by the policy owner, and the insurer is only responsible for management. investment account. The cash value of the policy may be zero due to poor returns on the investment account. That is why, in the United States, variable life insurance products are considered a marketable security product, and insurance companies operating variable life insurance products are required to register with the United States Securities and Exchange Commission (SEC) as investment company brokers and sell various variable life insurance products. Life insurance policies must also be registered with the SEC, and only sales agents with a broker or dealer license and insurance qualification under the federal securities laws are eligible to sell such products. However, in some other countries, such as Canada, variable life insurance is considered a life insurance product and can be sold.