A variable death benefit is an amount paid to your beneficiary after your death. The amount of this death benefit does not remain the same. Rather, it varies depending on how the investments made with some of the premium you pay performs. The profit of this investment increases your life insurance cash value. The increased cash value is then paid out alongside the minimum agreed death benefit to your dependent.
Pros of variable death benefit
- Increased death benefit
Choosing the variable death benefit increases the chance of your dependent getting a larger insurance benefit after your death.
- Involvement in the investment procedures
The variable death benefit option also allows you choose how to invest your cash value. Furthermore, you can take more investment risks if you prefer.
- Ability to take loans
The variable death benefit option allows you to take loans with your cash value account. However, the amount you can borrow increases when your investment makes a profit.
Cons of variable death benefit
- Uncertainty of investment outcome
The result of your investment could be good or bad. However, if the investment fails, the variable death benefit your dependent is to receive reduces. The outcome of your investment determines the death benefits.
- Variable death benefits may be subject to tax
While life insurance death benefits are usually non-taxable, variable death benefits may be taxable as it makes a profit from investments.
It is important to note that if you collect loans against the cash value, the death benefits will reduce.