Variable life insurance is a versatile financial tool combining life insurance coverage with an investment component. It allows policyholders to secure their loved ones' financial future while potentially growing their wealth. For insurance and wealth management advisors, having a solid understanding of variable life insurance is crucial to assist clients in making informed financial decisions. 

1. What is variable life insurance?

Variable life insurance is a form of permanent life insurance that offers a death benefit and cash value component. What distinguishes it from other types of life insurance is the investment component. Policyholders can allocate their premiums into various investment options, usually in sub-accounts resembling mutual funds. This unique feature offers the potential for the cash value to grow over time.

2. The investment component: a closer look

Unlike other types of life insurance, where the cash value might grow at a predetermined interest rate, variable life insurance allows policyholders to invest in the stock and bond markets. These investments are typically offered through sub-accounts within the policy. As a result, the cash value's growth is tied to the performance of these investments.

This feature offers policyholders the potential for higher returns than traditional life insurance, such as whole life or universal life. However, it also introduces investment risk, and the policy's value can fluctuate as the markets change. Wealth management advisors should guide their clients in choosing the appropriate investment options, ensuring they align with their risk tolerance and long-term financial objectives.

3. Tax benefits

As with other forms of life insurance, variable life has several tax advantages. The cash value within the policy grows on a tax-deferred basis, and policyholders can access the cash value through tax-free loans and withdrawals. This makes variable life insurance an attractive option for retirement income planning, particularly for clients who have reached contribution limits on other tax-advantaged accounts like Roth IRAs and 401(k)s.

4. Flexibility in premiums and death benefits

Another attractive feature of variable life insurance is its flexibility. Policyholders can often adjust their premium payments and death benefits to accommodate changes in their financial circumstances and long-term goals. For example, a client might choose to overpay or max fund the policy during their working years and then reduce their premium payments upon retirement. This adaptability ensures that the policy remains relevant as clients' situations evolve.

5. Risks and considerations

While variable life insurance offers the potential for higher returns, it's important to make clients aware of the associated risks. Market volatility can impact the cash value within the policy, which may lead to fluctuations in the death benefit and the policy's overall value. If the market experiences too many down years, especially in succession, it can severely impact the policy and even cause a premature lapse in some cases. Clients should understand that the performance of their investments can vary and may not experience consistent, guaranteed growth.

6. Ideal client profile

An ideal client profile for variable life insurance typically includes individuals or families who meet specific financial and life-stage criteria. Here are some key characteristics and considerations for identifying potential ideal clients for variable life insurance:

• High net worth individuals: Variable life insurance is often more suitable for individuals with higher incomes and substantial assets, as a significant upfront investment may be necessary.
• Long-term financial goals: Clients with long-term financial objectives, such as building wealth, providing for heirs, or creating a legacy, may find variable life insurance attractive. 
• Maximized contributions to other tax-advantaged accounts: Variable life insurance can be especially beneficial for individuals who have already reached contribution limits on other tax-advantaged accounts, like Roth IRAs and 401(k)s. 
• Risk tolerance: Clients comfortable with some investment risk may be a good fit for variable life insurance. Since the policy's cash value is tied to the performance of underlying investments, they should be prepared for market fluctuations.
• Estate planning objectives: Clients with estate planning needs may find variable life insurance a good option for ensuring heirs receive a substantial death benefit. 
• Willingness to review and adjust the policy: Variable life insurance is a long-term commitment, and clients should be willing to review their policies regularly with their advisors. They should also be open to adjusting their investment choices and death benefits as their financial circumstances change.

Empowering clients for a secure financial future

Wealth management advisors must conduct thorough financial assessments and have in-depth discussions with potential clients to determine if variable life insurance aligns with their financial goals and risk tolerance. Since variable life insurance is a complex financial product, clients should fully understand how it works and what it can offer before committing to a policy.

In a rapidly evolving financial landscape, variable life insurance stands out as a versatile solution that, when used wisely, offers both security and the potential for substantial wealth accumulation. With the right guidance from knowledgeable advisors, clients can harness the benefits of variable life insurance to achieve their long-term financial objectives.

Next steps

A tech-enabled brokerage like Modern Life can help advisors ensure clients have the coverage they need. Here's how:

1. Streamlined client intake: Modern Life offers digital intake forms, enabling clients to conveniently complete necessary documentation from the comfort of their homes. This leads to more precise responses and accelerates the underwriting process, ensuring your clients promptly get the coverage they need.
2. Efficient document management: We provide a secure platform for storing and organizing client documents. This single-point document management system minimizes paperwork-related mishaps, enhances organization, and promotes efficient case management. 
3. Responsive tracking: Advisors can effortlessly track the status of pending and completed requirements for each case. This real-time tracking system keeps you up-to-date and enables you to proactively engage with clients, helping to expedite the underwriting and approval process. 
4. Diverse coverage options: Modern Life offers diverse coverage options, allowing advisors to cater to various client needs. Advisors can also compare quotes from multiple carriers to find the best options that align with client preferences.
5. White glove, responsive service: Insurance can involve complex scenarios. Modern Life provides dedicated support for complex cases, ensuring advisors receive the assistance they need. This support results in faster approval times and cost savings for your clients. Our brokerage team is equipped to handle challenging scenarios, respond promptly to advisor questions, and provide service that aligns with the evolving insurance landscape.

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