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CHAPTER 11

life, the cash value doesn’t just earn a specified interest rate. Because the policyholders can choose what type of investments the premium can be invested in, people generally feel that this type of permanent insurance is more beneficial.

PROS AND CONS OF VARIABLE LIFE INSURANCE

The types of subaccounts vary with the company that is offering the policy, however; you can generally choose from a wide range of asset classes. In fact, the subaccounts are set up like mutual funds. You could choose to have a portion of your premium invested in a junk bond fund, or perhaps a high-growth fund. The possibilities are only limited by the insurance company. You will also be able to switch between funds at no cost, just as you would be able to with an annu- ity. Plus, since the investment account grows on a tax-deferred basis, you won’t be generating any capital gains tax when moving your money between accounts.

With variable policies, the emphasis is more on the separate accounts and the investment aspect of the policy than it is with any other type of policy. Because of that, variable policies have increased expenses that you wouldn’t necessarily see with universal or whole life policies. In addition to commissions for the insurance agent that sells you the policy, there are annual fees for servicing the insurance and managing the portfolio. These all help lower your overall return.

As with universal life, variable life policies have been misused. It’s very important that you make an informed decision when pur- chasing this kind of policy. Because the cash value goes up and down with the market, the potential to lose money is great. Of course, there is also a great possibility that you will gain quite a bit, or just break even. Although this is an insurance product, you should enter into a purchase as if you were about to buy a mutual fund. Make sure you do your research before committing to any type of policy.

OTHER TYPES OF LIFE INSURANCE

There are various other kinds of policies through which you could obtain life insurance. Some of them are beneficial and come at little

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