Variable life insurance annuities are investment vehicles that offer owners the flexibility to protect their loved ones in the event of their death, and at the same time, make a long-term investment for their future.
If the policy holder dies, money will be paid out to the family and/or beneficiaries of the policy so that they may cover funeral expenses and any other debts that they may have incurred, depending on the size of the annuity. This is also the basic premise of life insurance in general. The annuity portion of this investment further protects the policy holder by providing them with an investment if they do live beyond a certain point.
Generally, with a life insurance annuity, a person takes a particular sum of money and enters into a contract with a life insurance company. Usually this contract will have a designated amount of time, called an accumulation period, in which the principal in the account will be allowed to grow and accumulate interest in a tax-deferred fashion. During this period, any withdrawals made by the policy holder will generally be penalized or otherwise restricted. When the accumulation period is over, the policy holder will then usually have several options as to how to continue the contract, including lump sum payments, small monthly payments that extend over the life of the policy holder, or fixed monthly payments that last a specified period of time.
The fact that these annuities are variable, means that the rate in which they grow and accumulate interest varies. This rate will mostly depend on the types of investment vehicles chosen and the long-term state of the financial markets. Most investors that choose variable annuities do so because the rates of fixed-rate annuities are usually very small in comparison to the potential return rate of a variable annuity, providing the investment choices and financial markets are chosen well. Normally, most stock indexes greatly outperform the rates of fixed-rate annuities over the long-term, but when dealing with investments, past performance is never a guarantee of future results.
Since variable life insurance annuities have no guarantee of principal appreciation, they should be thoroughly researched and discussed with a financial advisor. If used in the proper manner, they can be terrific investment vehicles for the future. But, as with any investment, potential buyers should do their homework and choose the type of life insurance that is best for their particular situation.