Taxes & Insurance

With variable life insurance, a form of permanent (cash value) life insurance, you allocate your premium payments among subaccounts that resemble mutual funds. You enjoy tax-free buildup even if you move money from one subaccount to another.

Although there may be many subaccounts to choose among, with variable life insurance you may want to emphasize the subaccounts resembling stock funds rather than bond funds because stocks likely will provide the greatest long-term payoff.


Typically, you’ll pay life insurance premiums periodically, which is a form of dollar-cost averaging. Over a time horizon of 15 years or longer, well-managed stock subaccounts historically have overcome market corrections and have delivered substantial returns to investors.

If you enjoy strong subaccount performance you can maintain the same premium payments and see your cash value as well as the policy’s death benefits rise. Alternatively, you can trim premium payments in the future yet still sustain insurance coverage. Thus, 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.