What is Variable Life Insurance?

Variable life insurance offers lifelong coverage plus cash value you can invest in stocks and bonds.

Learn how variable life insurance works, its benefits and potential risks to decide if it's right for you.

Select age group

Written by Mark Fitzpatrick

Updated: January 20, 2026

Advertising & Editorial Disclosure

Key Takeaways

Your cash value fluctuates with market performance. Variable life places no caps on gains and offers no guaranteed returns.

Higher fees and market risk make variable life insurance suitable for experienced investors comfortable managing portfolios.

Skip variable life insurance if you want simple, straightforward coverage without investment complexity. It's also not ideal if you prefer guaranteed, predictable returns.

Variable life insurance involves investment risk, including potential loss of principal. Past performance doesn't guarantee future results. Consult with a qualified financial advisor before making investment decisions.

What Is a Variable Life Insurance Policy?

Variable life insurance is permanent coverage that includes an investment component. Unlike traditional whole life policies with guaranteed returns, variable life lets you invest your cash value in stock and bond subaccounts that can grow or lose value based on market performance.

With a variable life policy, your beneficiaries receive financial compensation when you die. It offers potential for higher returns than what whole life policies typically offer, but you'll also shoulder more risk as your cash value declines when markets drop.

How Variable Life Insurance Works

Variable life insurance combines two elements: permanent death benefit coverage and a cash value account you can invest. When you pay premiums, part covers your insurance costs, and part goes into your cash value. You choose how to invest that cash value across multiple subaccounts that hold stocks, bonds and money market investments.

Your cash value grows or shrinks based on how your chosen investments perform. Strong market years can build significant cash value. Market downturns reduce your account balance. The insurer sets a guaranteed minimum death benefit that remains in effect regardless of investment performance, but your actual death benefit increases when your investments do well.

You can adjust your investment mix as your goals or market conditions change. Most policies offer 10 to 30 subaccount options across different asset classes and risk levels. The policy prospectus details each subaccount's investment strategy, historical performance and fees.

Lifelong Coverage

Your policy provides death benefits for your entire lifetime as long as you pay premiums. You won’t need to renew or reapply even if your health changes The guaranteed minimum death benefit makes sure beneficiaries receive at least the minimum policy amount even if your investments perform poorly.

Investment Growth Potential

Your cash value grows tax-deferred, meaning you won't pay taxes on investment gains each year. Variable life places no caps on returns, unlike indexed universal life policies. When markets perform well, you capture the full upside. This creates opportunities for faster wealth accumulation than whole life insurance with its modest guaranteed returns.

Tax Treatment

Cash value grows without annual tax bills on investment gains. Beneficiaries receive death benefits income-tax-free in most cases. You can borrow against your cash value without triggering taxes, and withdrawals up to the amount you've paid in premiums are also tax-free.

Access to Cash Value

You can borrow against your accumulated cash value at favorable rates. Policy loans don't require credit checks or approval processes. Many people use these loans for major purchases, college tuition or retirement income supplementation.

You can also withdraw funds directly, though withdrawals reduce your death benefit. Some policyholders use cash value to pay premiums during financial hardship. If you no longer need coverage, you can surrender the policy and receive the cash value minus any surrender charges.

Variable Life Insurance Cost

Variable life insurance costs more than term life insurance and often exceeds the cost of other permanent life insurance types. Insurers require larger cash value reserves as a cushion against market downturns that could put your guaranteed death benefit coverage at risk.

Your life insurance premiums depend on your age, health status, coverage amount and death benefit structure. Younger, healthier applicants pay less. Higher coverage amounts mean higher premiums. Policies with level death benefits cost less than those where the death benefit can increase with cash value growth.

Policy Fees and Charges

Variable life policies include multiple fees that reduce your returns. Administrative fees cover policy maintenance and record-keeping. Mortality and expense charges (M&E fees) pay the insurer for insurance risk and guarantees. Investment management fees pay for professional management of subaccounts (investment options within your policy).

Surrender charges apply if you cancel the life insurance policy in the early years (often the first 10 to 15 years, depending on the contract). These charges start high and decrease over time. Some policies also assess premium expense charges on each payment.

The policy details disclose all fees. Review the document carefully before buying.

Variable Life Insurance Pros and Cons

Variable life insurance offers benefits but comes with risks. Evaluate both sides carefully before committing to this coverage type.

Pros and Cons

Pros

Unlimited growth potential: No caps on returns when markets perform well
Tax-advantaged wealth building: Cash value grows tax-deferred with tax-free death benefit
Permanent coverage: Lifelong financial protection with guaranteed minimum death benefit
Investment control: Choose your own asset allocation based on goals and risk tolerance
Cash value access: Borrow or withdraw funds for major expenses

Cons

Market risk: Cash value can decline when investments perform poorly
High fees: Multiple charges reduce net returns compared to direct investing
Complexity: Requires investment knowledge and active management
Premium cost: Higher premiums than term or whole life insurance
Surrender charges: Early cancellation leads to penalties

Who Should Consider Variable Life Insurance?

Variable life insurance makes sense when permanent coverage aligns with investment objectives. This coverage suits people wanting permanent life insurance who also have investing experience. You should be comfortable monitoring your subaccount allocations and adjusting them based on market conditions and your changing financial situation.

Consider variable life if you:

Want permanent coverage with investment growth potential beyond what whole life offers
Have high risk tolerance and understand that stock market volatility won't disappear overnight
Can afford to fund the policy heavily in the early years to build cash value faster
Already maximized other tax-advantaged retirement accounts and want additional wealth-building tools
Prefer actively managing investments rather than accepting guaranteed but modest returns
Want fixed premium payments you can plan around, rather than flexible payment schedules

Variable Life vs. Variable Universal Life (VUL)

Variable life and variable universal life insurance share investment features but differ in structure and flexibility.

VL vs. VUL

Similarities

Include investment components with multiple subaccount choices
Don't cap returns, allowing full participation in market gains
Require understanding of investment risk and active portfolio management
Experience cash value fluctuations during market downturns

Differences

Variable life charges fixed premiums you pay on a set schedule. VUL offers flexible premiums.
Variable life typically offers stronger death benefit guarantees. VUL lets you adjust your death benefit amount up or down as needs change.

Variable life has become less common as insurers favor VUL products. You'll find more VUL options when shopping for life insurance coverage. But variable life's fixed premium structure appeals to people who want predictable costs and don't need payment flexibility.

Variable Life Insurance: Bottom Line

Variable life insurance serves experienced investors wanting permanent coverage with aggressive wealth-building potential. You'll pay higher premiums, manage investment risk and monitor multiple fee structures. Market downturns can lessen cash value, and early surrender triggers substantial charges.

Compare variable life with other types of life insurance, such as whole life, VUL and term life, to find coverage that matches your financial goals and risk comfort level.

Variable Life Insurance Policy: FAQ

Can I lose money with variable life insurance?

Yes. Your cash value declines when your chosen investments perform poorly. Market downturns reduce your account balance.

The death benefit often has a guaranteed minimum that your beneficiaries will receive regardless of investment performance.

Is variable life insurance a good investment?

It depends. Variable life insurance works as an investment for people who need permanent life insurance and want tax-advantaged wealth building.

Variable life insurance isn't purely an investment vehicle. You're paying for insurance coverage plus investment features. High fees often make direct investing in a brokerage account more cost-effective for people who don't need permanent life insurance.

What happens if my investments perform poorly?

Poor investment performance reduces your cash value. Severely weak returns over many years could require you to pay additional premiums to keep the policy from lapsing. The guaranteed minimum death benefit protects your beneficiaries even if the cash value drops to zero.

Can I change my investment allocations?

Yes. Most insurers let you reallocate among available subaccounts at any time. Some companies allow unlimited changes, while others limit reallocation frequency. Check your policy terms for rules and any associated fees.

About Mark Fitzpatrick

Mark Fitzpatrick, a Licensed Property and Casualty Insurance Producer, is MoneyGeek's resident Personal Finance Expert. He has analyzed the insurance market for over five years, conducting original research for insurance shoppers. His insights have been featured in CNBC, NBC News and Mashable.

Fitzpatrick holds a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He's also a five-time Jeopardy champion!

He writes about economics and insurance, breaking down complex topics so people know what they're buying.

Read Full Bio »