Variable life insurance offers the opportunity to invest your premiums among various subaccounts, at your direction. Depending on the policy, there might be several or even several dozen subaccounts, most of which are designed to look like mutual funds.
Many buyers of variable life insurance expect to tap the cash value at some point in the future. You might hold on for a while–certainly for 10 years or longer–and eventually access the cash value. If you work with a knowledgeable agent you withdraw or borrow from your cash value without owing income tax.
Funding a college education may be an ideal application of variable life. If you buy for a newborn, you have 18 years of buildup: over almost any 18-year time period, stocks are likely to do well. Then, you can start taking money from the cash value when college payments come due. If you should die in the meantime, the death benefits may be used for college costs.
Therefore, variable life insurance offers a can-win, can’t-lose outlook. Money invested in such policies may enjoy stock market appreciation without current taxation and distributions also may escape income tax. Whether or not the cash value is needed, your beneficiary will receive a death benefit at some point, also free of income tax. (Very large estates may owe estate tax.)
