Variable Life Insurance

A variation of whole life insurance created to fight inflation and to remain competitive with other investment vehicles that provide higher rates of return. It affords policyholders a chance to earn capital gains on their insurance by investing the cash value of the policy in stock, bond, or money market portfolios. The policyholder sustains the investment risk and the insurance company guarantees a minimum death benefit that is not affected by any portfolio losses. As in IRAs, earnings from variable life policies grow tax deferred until distributed. Income is taxed only for the amount that exceeds the total premiums paid into the policy.

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