Variable life insurance permits you to capitalize on the stock market’s long-term growth. In addition, you’ll enjoy all the tax benefits of permanent life insurance: There’s no income tax on investment income inside the policy. You can access a portion of your cash value without owing income tax. When you want the money in your policy’s cash value you can take tax-free withdrawals until you reach the amount of the money you’ve paid in premiums. After that point, you can take tax-free policy loans. There will be a substantial payout to your beneficiary after
your death, free of income tax. The bottom line is that variable life insurance can provide tax-free retirement income to you, as long as you tap the policy carefully, and an income tax-free death benefit to your loved ones.
Here’s the catch: You need to be in relatively good health to make the most of variable life insurance. If you have a health condition, you’ll have to pay higher premiums. Limited selection may be a another concern. Even the broadest variable life policies have no more than a few dozen subaccounts while many have just a handful. If you invest outside a variable life policy, you have thousands of mutual funds to choose among in addition to individual securities. You should hold a variable life policy at least 15 years (the longer the better). This will provide enough time for the cash value’s tax-free compounding to outweigh the sales commissions and other upfront costs.
