Pat, wanting to invest in a security that could potentially yield high cash value, decided to take out a variable life insurance policy because he wanted to maximize the death benefits from his insurance policy but still have a guaranteed minimum that would pay out upon his death.
Variable life insurance
Definition
A form of whole life insurance that accumulates cash value on a tax-deferred basis. Variable life insurance operates similarly to a mutual fund because the insured pays premiums that go into a separate investment account owned by the insured. The variable life insurance policy yields a death benefit to the insured: while there is a minimum guaranteed death benefit, part of the death benefit is variable and depends on the performance of the insured’s investment accounts. Variable life policies are securities and are subject to federal securities laws as well as state insurance regulation.
Illustrative caselaw
See, e.g. Lincoln National Life Insurance Co. v. Bezich, 610 F.3d 448 (7th Cir. 2010).
See also
Definition from Nolo’s Plain-English Law Dictionary
A type of whole life insurance in which the amount of death benefits varies, depending on the performance of investments. The insurance company places some or all of the fixed premium payments into an investment account; some companies let the insured person decide how the money is invested. The policyholder bears the risk of investment losses, though there is a guaranteed minimum benefit payment. One benefit of variable insurance is that interest and dividend income from the investment account is not taxed until it is paid out to the policyholder.
Definition provided by Nolo’s Plain-English Law Dictionary.
August 19, 2010, 5:26 pm
“Policyholders like Bezich hold a single variable life insurance policy; under the policy, participants may allocate money between a General Account, which accumulates value from premium payments, and a Separate Account, an investment account whose value varies depending on the performance of the investments selected. The Separate Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940, 15 U.S.C. §§ 80z-1 to -64.”
