Realistic Variables

Katt, Peter C.
July 1994
Journal of Financial Planning;Jul94, Vol. 7 Issue 3, p102
Academic Journal
This article examines the benefits of variable life insurance. Variable life insurance is distinct from universal or whole life because the policyholder has several mutual funds available in which to invest the policy's cash value. Nearly everyone who considers the purchase of variable life imagines they will invest in equity funds. This contrasts with universal or whole life in which the policyholder plays no role in selecting the type of investments made with his or her premiums. The premiums are invested by the life insurance company and investment results are shared equally by all policyholders. The primary investment supporting most universal or whole-life policies is intermediate corporate bonds, whose yields have fallen from their high levels in the 1980s. Variable life should be considered only for clients who are committed to investing and holding, an equity investment. Clients who are likely to cut and run when the stock market drops or who check market results daily should avoid variable life regardless of their financial situation. Further, clients with little discretionary income should be discouraged from variable life because buying it just before an extended market drop could require clients to cover these losses with higher premiums in order to maintain the goals established for their life-insurance program.


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