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Variable Life Insurance: Explained

Comprehensive insights into how variable life insurance works and its advantages for policyholders.

Choose from a wide range of term insurance plans, starting at Rs. 15/day*

Insurance is not just about providing financial security; it’s also a tool for wealth creation. Variable life insurance (VLI) combines the protection of life insurance with investment opportunities, offering policyholders a chance to grow their wealth while ensuring their loved ones are protected. Unlike traditional life insurance plans, or term insurance, VLI allows the policyholder to allocate a portion of their premiums to various investment options, including equity funds, bonds, and money market instruments. With flexibility and potential for higher returns, variable life insurance can be an attractive choice for those looking to combine coverage with wealth-building opportunities. Let’s dive deeper into what it entails, its features, benefits, risks, and how to choose the right plan.

What is variable life insurance?

Variable life insurance is a type of permanent life insurance that includes an investment component. Alongside the death benefit, it allows policyholders to invest in a range of funds such as equity, debt, or balanced funds. The returns on these investments depend on market performance, giving policyholders a chance to grow their wealth over time.
 

The distinguishing feature of variable life insurance is its flexibility. Policyholders can adjust their premium payments and investment choices based on their financial goals and risk appetite. While it offers the potential for higher returns, the policyholder assumes the investment risks, making it a suitable option for individuals comfortable with market fluctuations.

Key features and benefits of variable life insurance

Variable life insurance offers a blend of protection and investment opportunities, making it a versatile financial product.

Dual benefits:

VLI provides a life cover along with an investment component, ensuring both financial protection and wealth creation.

Investment flexibility:

Policyholders can choose from various funds like equity, debt, or balanced funds to align with their risk tolerance and goals.

Cash value accumulation:

Over time, the policy builds a cash value based on the performance of the chosen investments, which can be accessed or borrowed against.

Customisable premiums:

Premium payments can often be adjusted to suit the policyholder's financial situation, offering greater flexibility.

Tax benefits:

Under Section 80C and Section 10(10D) of the Income Tax Act in India, VLI offers tax advantages on premiums and payouts.

Potential for higher returns:

With market-linked investments, VLI has the potential to deliver better returns compared to traditional life insurance plans.

What are the investment options in variable life insurance?

Variable life insurance offers a wide range of investment choices to help policyholders diversify their portfolio and achieve financial growth.

Equity funds:

Ideal for those seeking higher returns and willing to accept market risks, equity funds invest in stocks and other equity instruments.

Debt funds:

For risk-averse investors, debt funds offer more stability by investing in government bonds, corporate bonds, and other fixed-income securities.

Balanced funds:

These funds strike a balance between risk and return by investing in a mix of equity and debt instruments.

Money market funds:

Suitable for short-term financial goals, money market funds invest in low-risk instruments like treasury bills and certificates of deposit.

Customised portfolios:

Some variable universal life insurance policies allow policyholders to customise their investment mix, enabling them to tailor their portfolio to their specific goals.

What are the risks associated with variable life insurance?

While variable life insurance offers several benefits, it comes with risks that policyholders should carefully consider.

Market volatility:

The returns on VLI depend on market performance, making it susceptible to fluctuations in equity and debt markets.

Investment losses:

Poor market performance can lead to reduced cash value and even affect the death benefit if investments underperform.

Higher costs:

VLI policies often have higher fees and charges, such as administrative fees, fund management fees, and mortality charges.

Complexity:

Understanding and managing the investment component of VLI can be challenging, requiring financial knowledge and regular monitoring.

No guaranteed returns:

Unlike traditional insurance plans, VLI does not guarantee returns, which may not suit conservative investors.

How to choose the right variable life insurance policy?

Selecting the right variable life insurance policy requires careful evaluation of your financial goals, risk tolerance, and investment preferences.

Assess your risk appetite:

Determine whether you are comfortable with market fluctuations and investment risks.

Understand the fund options:

Choose a policy that offers diverse and high-quality investment options aligned with your financial objectives.

Evaluate costs:

Review the charges and fees associated with the policy to ensure they are reasonable and transparent.

Check policy flexibility:

Opt for a plan that allows adjustments in premium payments and investment choices as per your evolving needs.

Analyse the insurer’s reputation:

Choose a reliable insurer with a strong track record and good fund management capabilities.

Seek professional advice:

Consult a financial advisor to understand the policy’s features and ensure it aligns with your financial plan.

Conclusion

Variable life insurance is an innovative financial product that combines life cover with investment opportunities, offering flexibility and potential for high returns. However, it requires careful planning and understanding of the associated risks. By evaluating your financial goals and risk tolerance, you can choose a policy that secures your family’s future while helping you achieve long-term wealth creation.


Also, read:

Types of life insurance

Life insurance calculator

Term insurance calculator

Life insurance definition

1 crore term insurance

What is term insurance

Frequently asked questions

What makes variable life insurance different from other policies?

Variable life insurance stands out by combining life cover with investment options. Unlike traditional plans, it allows policyholders to allocate premiums to market-linked funds, offering potential for higher returns but also carrying investment risks.

What are the main features and benefits of variable life insurance?

Key features include dual benefits of life cover and investment, cash value accumulation, investment flexibility, and tax advantages. It is ideal for those seeking both financial protection and long-term wealth creation.

How do investment components work in variable life insurance?

A portion of the premium is invested in market-linked funds chosen by the policyholder. The returns on these investments determine the policy’s cash value and may affect the death benefit.

What risks should policyholders consider when choosing variable life insurance?

Policyholders must consider market volatility, potential investment losses, higher costs, and the absence of guaranteed returns. Regular monitoring and a clear understanding of these risks are crucial.

How to select the best variable life insurance plan for your needs?

Assess your risk tolerance, review fund options, evaluate policy costs, and consider the insurer’s reputation. Seeking advice from a financial expert can also help you make an informed decision.

Can variable life insurance provide guaranteed returns?

No, variable life insurance does not offer guaranteed returns. Its performance depends on the market and the chosen investment funds, making it better suited for those comfortable with financial risk.

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Disclaimer

*T&C Apply - Bajaj Finance Limited (‘BFL’) is a registered corporate agent of third party insurance products of Bajaj Allianz Life Insurance Company Limited, HDFC Life Insurance Company Limited, Future Generali Life Insurance Company Limited, Bajaj Allianz General Insurance Company Limited, SBI General Insurance Company Limited, ACKO General Insurance Limited, ICICI Lombard General Insurance Company Limited, HDFC ERGO General Insurance Company Limited, Tata AIG General Insurance Company Limited, The New India Assurance Company Limited, Cholamandalam MS General Insurance Company Limited, Niva Bupa Health Insurance Company Limited , Aditya Birla Health Insurance Company Limited, Manipal Cigna Health Insurance Company Limited and Care Health Insurance Company Limited under the IRDAI composite CA registration number CA0101. Please note that, BFL does not underwrite the risk or act as an insurer. Your purchase of an insurance product is purely on a voluntary basis after your exercise of an independent due diligence on the suitability, viability of any insurance product. Any decision to purchase insurance product is solely at your own risk and responsibility and BFL shall not be liable for any loss or damage that any person may suffer, whether directly or indirectly. Please refer insurer's website for Policy Wordings. For more details on risk factors, terms and conditions and exclusions please read the product sales brochure carefully before concluding a sale. Tax benefits applicable if any, will be as per the prevailing tax laws Tax laws are subject to change. BFL does NOT provide Tax/Investment advisory services. Please consult your advisors before proceeding to purchase an insurance product. Visitors are hereby informed that their information submitted on the website may also be shared with insurers. BFL is also a distributor of other third-party products from Assistance Services providers such as CPP Assistance Services Pvt. Ltd., Bajaj Finserv Health Ltd. etc. All product information such as premium, benefits, exclusions, sum insured, value added services, etc. are authentic and solely based on the information received from the respective insurance company or the respective Assistance service provider company.

Note – While we have made all efforts and taken utmost care in gathering precise information about the products, features, benefits, etc. However, BFL cannot be held liable for any direct or indirect damage/loss. We request our customers to conduct their research about these products and refer to the respective product’s sales brochures before concluding their sale.

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