20-Plus Years of Investment in Variable Life - Part 3

The key advantage of variable life is that you have the ability to direct your account value to the investment of choice from among those offered. Furthermore, a variety of new accounts constantly are being added to existing policies, giving policy owners more choice and opportunity for diversification. Even though higher expenses have been associated with first-generation variable life insurance policies, these policies have offered the highest net return available from a life insurance policy from 1976 to the present when the assets are invested in the common stock account.

These variable policies must be sold with a prospectus that divulges more information regarding the workings of a life insurance policy than ever before. The data have to be extracted from the prospectus to be useful, but you will find that the prospectus is a great source of readily available, quality information.

When these policies work efficiently, your investment in the contract provides you with life insurance protection, multiple sub-accounts for your investment capital, professional management, and the ability to redirect your investments. All this can be accomplished without incurring income tax liability as you move your assets within the contract. The income tax shelter of the contract protects interest, dividends, and capital gains from current income taxation. The sale of one fund and purchase of another within the contract is not a taxable event.

As a result, investment strategies such as dollar cost averaging, asset allocation, and distinctive feature of the fixed-premium variable life policy is that once you have purchased it, you cannot increase or decrease the contractual amount to be paid into it. It is designed to be a fixed-premium contract that may require anything from a single premium to a lifetime of level payments. The lifetime-of­payments feature can be considered an advantage since policy owners are required to keep up their premium payments, and thus their investments into the contract, which may be just the incentive many people need to continue investing. Too many people have interpreted the flexibility-of-investment feature in universal policies as an excuse not to invest. Instead, they choose to spend, which is often detrimental to their economic well-being.