The most commonly sold form of variable life is variable universal life insurance. It works similarly to universal life except that the cash value accumulation depends on the performance of the underlying investments, or sub-accounts, that you choose, rather than on a current interest rate. Sub-accounts are owned by the policyholder and not tied to the investment portfolio of the life insurance company. The company generally offers you a choice of stock and bond accounts, and a guaranteed investment account. These types of policies shift the investment burden from the company to you.

IMPORTANT NOTE: This is an investment-oriented product. Your death benefit is based on the performance of the underlying investments. If your investments do poorly, you run the risk that your death benefit will be reduced and the policy could possibly lapse. To protect yourself against this danger, companies offer riders to guarantee the death benefit regardless of investment performance. These riders may substantially add to the cost of what a regular universal life policy would cost.

Advantages of Variable Universal Life over Other Forms of Cash-value Insurance

• If your funds perform well over the long-term, your cash-value will rise and your death benefit goes up.
• Your death benefit can stay ahead of inflation since it will grow with the increase in cash value.

Disadvantages of Variable Universal Life over Other Forms of Cash-value Insurance

• Your cash value is not guaranteed.
• The contract fees and administration expenses are high, and require a high annual return to make your investment worthwhile. If you're considering a short-term bond or fixed-interest account, consider a regular universal life policy.
• If you're not comfortable with investments that have short-term volatility, you'll have difficulty sleeping at night knowing that the value of your cash and death benefit can fall.
• If you're planning to borrow from the cash-value like you would in a 401(k) plan, you're similarly reducing your long-term investment performance. Your death benefit may also be negatively impacted.

IMPORTANT NOTE: Your sub account performance is based on the portion of your premium that goes into your sub account after the insurance company deducts mortality charges, contract, and administrative charges, including taxes and risk guarantees. If the fund returned 8% last year, your real rate of return on your contributions will be considerably less. Typically, agents can illustrate these policies using annual interest assumptions up to 12%. If an insurance agent shows you a variable life illustration, use a more conservative rate.

SUGGESTION: If you're not an investor and conservative by nature, and concerned that your heirs will have the right amount of money when you're no longer here, don't gamble on a variable death benefit. When might you consider this type of policy? After you have fully funded your retirement plans, have a solid base of term insurance, and plan on holding the policy for a very long time, at least 20 years.

IMPORTANT NOTE: Variable Life Insurance must be sold with a prospectus. It is an investment product and comes under the scrutiny of the Securities and Exchange Commission. Make sure that your agent is a registered representative and he or she provides you with a prospectus.