Single premium life insurance is just what the name implies; an insured pays a single premium upfront and is insured for as long as they live without the need for an additional premium payment. Unfortunately, this same definition does not apply when the variable part of the policy comes into play. Due to poor investment, stock market conditions the economy or plan bad investments the policy may require an additional premium payment as the years go by. Constantly go in and out of stock, bonds mutual funds will cause a good portion of the cash value to be eaten up by commissions. The lower the cash value the less money that is available for the insurance company to deduct the cost of insurance. As a person ages the cost of life insurance increased and even though you have a single premium policy if the cash value is not sufficient to deduct the cost of insurance from the insurance company will send you a bill. Thus the older you get the more the insurance cost and the possibility of needing more money or losing your policy exists.
The least appropriate person for this type of policy is someone living on a fixed income, social security or retirement benefits. A person in this category usually is an older person and easily susceptible to sales tactics in fear of running out of money and possibly becoming a financial burden to their children and family.
Variable life insurance is a form of whole life insurance that provided permanent protection to the beneficiary upon the death of the insured. This type of insurance is generally the most expensive type of cash value insurance because it allows the insured to allocate a portion of the premium to a separate account comprised of various investment funds within the insurance company’s portfolio such as stocks, bonds, equity funds, and money market fund and bond funds. In addition, because of investment risks variable policies are considered securities contracts, are regulated under the federal securities laws, and therefore must be sold with a prospectus.
The major advantage to variable life insurance policies is that they allow the insured to participate in various types of investment options while not being taxed on the earnings (until the policy is surrendered).The insured can also apply the interest earned on these investments toward the premiums, potentially lowering the amount you pay. However, due to investment risks, when the invested funds perform poorly, less money is available to pay the premiums, meaning that you may have to pay more than you can afford to keep the policy in force. Poor investment performance also means that the cash value and/or death benefit may decline. Unlike traditional whole life insurance where the premium and the cash value are guaranteed and the cash, value can be withdrawn under a variable life insurance policy you cannot withdraw from the cash value during your lifetime.