Life insurance isn’t just about providing a death benefit—it’s a financial tool that can build cash value, create liquidity, and provide long-term stability. But not all life insurance policies are structured the same way. Variable life insurance is often marketed as an investment-friendly option, offering market-based growth potential. However, it also carries significant risks that many policyholders overlook.
At Paradigm Life, we focus on The Perpetual Wealth Strategy™, a proven method that ensures your money works for you, not against you. Unlike variable life insurance, which exposes cash value to market volatility, this strategy is built on Whole Life Insurance, offering guaranteed growth, tax-free liquidity, and long-term financial control—without unnecessary risk.
What Is Variable Life Insurance?
Variable life insurance is a type of permanent life insurance that includes a cash value component. Unlike whole life insurance, which grows at a guaranteed rate, the cash value of a variable life policy depends on market performance. This means your money can grow when investments perform well but may lose value if the market declines.
How Variable Life Insurance Works
When you purchase a variable life insurance policy, you pay annual premiums that cover:
- The death benefit : A payout to your beneficiaries when you pass away.
- Administrative and brokerage fees : Costs for managing your policy and investments.
- Market-based investments : Your cash value is invested in stocks, bonds, or money market accounts.
Cash Value Growth and Market Risk
- If investments perform well, the cash value increases, potentially providing more financial flexibility.
- If the market declines, the cash value may decrease, reducing available funds.
- If cash value is depleted, the policy may lapse, meaning you could lose coverage and past premium payments.
Pros & Cons of Variable Life Insurance: What You Need to Know
Variable life insurance offers potential market-based growth, but it also carries significant risks that can impact long-term financial stability. Unlike Whole Life Insurance, which provides guaranteed cash value growth, variable policies fluctuate with market conditions.
Before choosing this type of policy, it’s important to understand both the benefits and drawbacks to determine if it aligns with your financial goals.
Pros of Variable Life Insurance
- Flexible, Variable Premiums
Some policies allow for variable premiums adjustments, meaning policyholders can increase, decrease, or use cash value to cover costs.
- Favorable Tax Treatment
Favorable tax treatment like other permanent life insurance policies, variable life insurance provides tax-deferred cash value growth and tax-free death benefits for beneficiaries.
- Market-Linked Growth Potential
If market conditions are strong, earnings in a variable life insurance policy may outperform other types of permanent life insurance.
- Guaranteed Death Benefit
Regardless of market performance, the death benefit remains intact, providing financial security for beneficiaries.
Cons of Variable Life Insurance
- No Guaranteed Rate of Return
Unlike Whole Life Insurance, which offers stable, predictable growth, variable life insurance is tied to market fluctuations, meaning policyholders may gain or lose money.
- High Administrative and Brokerage Costs
The high administrative and brokerage costs of variable life insurance comes with higher fees, including brokerage and administrative costs, which reduce overall returns.
- Earnings Caps on Market Returns
Even if the market performs well, insurers may limit potential gains, preventing policyholders from fully benefiting from market growth.
- Policy Lapse Risk
If cash value is depleted, policyholders may be required to pay higher premiums to keep the policy active. If they cannot, the policy could lapse, resulting in the loss of coverage and previously paid premiums.
Is Variable Life Insurance Right for You?
Choosing the right life insurance policy is an important financial decision. While term policies provide coverage for a set period and only pay a death benefit if you pass away during that time, permanent life insurance offers lifelong protection along with cash value that can be accessed tax-free. However, not all permanent policies are the same. Understanding the differences between variable life insurance, Whole life insurance, and universal life insurance can help determine the best option for your financial goals.
How Comfortable Are You with Risk?
- Variable life insurance offers the potential for high returns but also comes with significant risks. Its cash value is tied to market performance, meaning returns are uncertain, and administrative and brokerage costs can be high.
- Whole life insurance is the most stable form of permanent coverage. It provides a guaranteed rate of return, ensuring steady and predictable growth without exposure to market volatility.
If financial stability is a priority, whole life insurance offers protection and consistent cash value accumulation.
Do You Need Flexible Premiums?
- Variable life insurance may allow for premium adjustments, but the high fees can offset flexibility.
- universal life insurance provides flexible premiums without the market risk of a variable policy.
If premium flexibility is important, universal life insurance may be a better choice than variable life insurance. However, for those who prioritize guaranteed growth and long-term security, whole life insurance remains the most reliable option.
How Do You Plan to Use Your Cash Value?
- Whole life insurance is considered an “AND” asset, meaning when you borrow against its cash value, it continues to grow at a guaranteed rate. This allows you to use your money while still benefiting from its long-term accumulation.
- Universal and variable life insurance do not function as true “AND” assets, as borrowing against them can decrease cash value and impact policy performance.
If you’re looking to fund real estate investments, business expansion, or emergency cash flow, whole life insurance provides the strongest financial foundation and an effective wealth-building strategy..
The Best Strategy for Long-Term Wealth
For those seeking financial security and long-term wealth, whole life insurance offers a guaranteed, risk-free foundation that allows money to grow and remain accessible. While variable life insurance may appeal to those willing to take on market risk, it lacks the stability and certainty that whole life insurance provides.
With The Perpetual Wealth Strategy™, whole life insurance serves as more than just protection—it becomes a powerful financial tool that enables you to:
- Build guaranteed cash value growth that compounds over time.
- Access liquidity through tax-free policy loans, ensuring financial flexibility.
- Create a stable, market-proof foundation for wealth building without volatility.
If you’re ready to take control of your financial future, schedule a free strategy session with a Paradigm Life Wealth Strategist today and discover how whole life insurance can be the cornerstone of your long-term wealth strategy.
Final Thoughts: A Smarter Alternative to Variable Life Insurance
While Variable Life Insurance may appeal to those seeking market-based growth, its risks, high fees, and potential for policy lapses make it an unpredictable financial tool. For those looking for long-term security, liquidity, and guaranteed growth, strategies like The Perpetual Wealth Strategy™ provide a more stable and effective path to wealth building.
By leveraging Whole Life Insurance, you can build a risk-free financial foundation, access capital through tax-free policy loans, and protect your wealth from market volatility.
To learn how strategies like The Family Bank Strategy or The Volatility Buffer can enhance your financial future, schedule a free strategy session with a Paradigm Life Wealth Strategist today.
