Variable Life Insurance: Investment and Protection Combined

Variable Life Insurance is one such option that is gaining popularity among Indian investors. It combines the features of traditional life insurance with investment options, allowing you to earn returns on your premiums while ensuring financial protection for your family's future. In this article, we will explain what Variable Life Insurance is, its features, benefits, and drawbacks, and whether it is a suitable option for your financial goals.

What is Variable Life Insurance in India?

Variable Life Insurance is a type of life insurance policy that offers both insurance coverage and investment opportunities. It allows you to invest a portion of your premium payments in a variety of investment funds, such as equity, debt, or balanced funds. The investment returns depend on the performance of the underlying funds, and the policy's cash value grows based on the investment returns.The key feature of Variable Life Insurance is its flexibility. You can choose the amount of premium you want to pay, the investment funds you want to invest in, and the sum assured for your family's protection. You can also switch between investment funds or alter your premium payments based on your changing financial goals.

Benefits of Variable Life Insurance in India

Here are the essential features of Variable Life Insurance in India.

Life insurance coverage

Variable Life Insurance provides life insurance coverage for a specific period, ranging from 5 to 30 years or more. The policyholder can choose the sum assured, which is the amount paid to the nominee in case of the policyholder's death.

Investment options

Variable Life Insurance offers a range of investment options, such as equity funds, debt funds, or balanced funds. The investment returns depend on the performance of the underlying funds, and the policyholder can switch between funds based on their risk appetite and investment goals.

Premium payment flexibility

The policyholder can choose the amount and frequency of premium payments, which can be monthly, quarterly, or annually. They can also alter or stop the premium payments altogether without affecting the policy's coverage or cash value.

Higher return

Since Variable Life Insurance invests in market-linked funds, it has the potential to generate higher returns than traditional life insurance policies. However, the returns are subject to market risks and can vary based on the performance of the underlying funds.

Tax benefits

Variable Life Insurance offers tax benefits under Section 80C of the Income Tax Act, 1961. The premiums paid are deductible up to INR 1.5 lakhs, and the maturity proceeds are tax-free under Section 10(10D).

How does Variable Life Insurance work?

Here's how Variable Life Insurance works in India.

Choose the policy

The first step is to select the Variable Life Insurance policy that suits your financial goals and risk appetite. You can choose the sum assured, the premium amount, and the investment funds you want to invest in.

Pay the premiums

The policyholder needs to pay the premiums as per the policy's terms and conditions. The premiums can be paid monthly, quarterly, or annually, and the policyholder can alter the premium payments as per their changing financial goals.

Invest in funds

The policyholder can invest a portion of their premium payments in various investment funds. They can choose the funds based on their investment goals, risk appetite, and market conditions. The investment returns depend on the performance of the underlying funds.

Build cash value

The policy's cash value grows based on the investment returns. The policyholder can withdraw the cash value or borrow against it as per the policy's terms and conditions.

Get life insurance coverage

The policy provides life insurance coverage for a specific period, ranging from 5 to 30 years or more. The sum assured is paid to the nominee in case of the policyholder's death. The coverage amount depends on the policyholder's sum assured and premium payments.

Switch funds

The policyholder can switch between the investment funds based on their changing financial goals, risk appetite, and market conditions. The policy's terms and conditions may specify the frequency and conditions for fund switching.

Surrender the policy

The policyholder can surrender the policy and receive the surrender value as per the policy's terms and conditions. The surrender value is the policy's cash value minus any surrender charges or penalties.

Types of Variable Life Insurance in India

In India, different types of Variable Life Insurance Policies are available to cater to different financial goals and risk appetites. Let's look at some of the popular types of Variable Life Insurance in India.

Unit-linked insurance plan (ULIP)

ULIP is a Variable Life Insurance Policy that invests the policyholder's premium payments in various market-linked funds. The policyholder can choose the funds based on their investment goals and risk appetite. ULIPs provide flexibility, higher returns, and tax benefits, making them a popular investment option in India.

Indexed ULIP

Indexed ULIP is a type of Variable Life Insurance Policy that invests premium payments in index funds. The policyholder can choose the index based on their investment goals and risk appetite. The returns depend on the index's performance, making it a less risky investment option than other market-linked funds.

Variable annuity

Variable annuity is a type of Variable Life Insurance Policy that provides regular income payments to the policyholder after retirement. The policyholder can choose the investment funds based on their financial goals and risk appetite. The returns depend on the performance of the underlying funds.

Endowment plan

An endowment plan is a type of Variable Life Insurance Policy that provides life insurance coverage and investment opportunities. The policyholder can choose the investment funds based on their financial goals and risk appetite. The policy provides a lump sum amount on maturity or in case of the policyholder's death.

Child plan

A child plan is a type of Variable Life Insurance Policy that provides financial security for the child's future. The policy provides life insurance coverage and investment opportunities to build a corpus for the child's education or marriage. The policyholder can choose the investment funds based on their financial goals and risk appetite.

Drawbacks of Variable Life Insurance

Variable Life Insurance Policies in India come with several benefits, including life insurance coverage and investment opportunities. However, like any other investment, Variable Life Insurance Policies also have drawbacks. Let's look at some of the drawbacks of Variable Life Insurance Policies in India.

High fees

Variable Life Insurance Policies come with high fees and charges, such as administrative fees, mortality charges, and fund management fees. These fees can significantly reduce the policy's returns, especially in the initial years of the policy.

Market risks

Variable Life Insurance Policies invest the policyholder's premium payments in market-linked funds. The returns depend on the performance of the underlying funds, which are subject to market risks. The policy's returns can be adversely affected if the market performs poorly.

Surrender charges

If the policyholder decides to surrender the policy before the maturity period, they may have to pay surrender charges. These charges can be high, especially in the initial years of the policy, and can significantly reduce the policy's returns.

Limited flexibility

Variable Life Insurance Policies come with limited flexibility. The policyholder may not be able to switch between funds or make partial withdrawals during the initial years of the policy. This can be a drawback for those who prefer flexibility in their investments.

Complexity

Variable Life Insurance Policies can be complex, with several terms and conditions. It may be challenging for the policyholder to understand the policy's investment options and associated risks. This can make it challenging to make informed investment decisions.

How is Variable Life Insurance different from other types of life insurance policies in India?

Variable Life Insurance is a unique type of insurance plan that differs from other types of life insurance plans in several ways. Let's take a look at how Variable Life Insurance differs from other types of life insurance plans in India.

Investment options

Variable Life Insurance Plans provide investment opportunities to policyholders by investing the premium payments in market-linked funds. On the other hand, other types of life insurance plans, such as Term Insurance and Endowment Plans, do not offer investment opportunities to policyholders.

Risk and returns

Variable Life Insurance Plans carry market risks as the returns depend on the performance of the underlying funds. Other types of life insurance plans, such as Term Insurance and Endowment Plans, do not carry market risks as they offer guaranteed returns.

Premium payments

Variable Life Insurance Plans have flexible premium payment options. Policyholders can choose to pay the premium in a lump sum or through regular premium payments. Other types of life insurance plans, such as Term Insurance and Endowment Plans, require regular premium payments.

Maturity benefits

Variable Life Insurance Plans provide maturity benefits based on the performance of the underlying funds. Other types of life insurance plans, such as Term Insurance and Endowment Plans, offer guaranteed maturity benefits.

Who should consider buying a Variable Life Insurance Policy in India?

This type of insurance policy is suitable for individuals who have a long-term investment horizon and are willing to take market risks to achieve potentially higher returns. Here are some scenarios where Variable Life Insurance may be a good fit for you.

Long-term investment goals

Variable Life Insurance Policies are designed to provide long-term investment opportunities. If you have long-term investment goals and are willing to take market risks to achieve potentially higher returns, a Variable Life Insurance Policy may suit you.

High-risk appetite

Variable Life Insurance Policies carry market risks and are subject to market volatility. If you have a high-risk appetite and are willing to take market risks, a Variable Life Insurance Policy may suit you.

Tax planning

Variable Life Insurance Policies provide tax benefits under Section 80C of the Income Tax Act. If you are looking for tax planning opportunities, life insurance coverage, and investment opportunities, a Variable Life Insurance Policy may suit you.

Estate planning

Variable Life Insurance Policies can be used for estate planning purposes. If you want to pass on your wealth to your heirs tax-efficiently, a Variable Life Insurance Policy may suit you.

Retirement planning

Variable Life Insurance Policies can also be used for retirement planning. If you want to build a retirement corpus and are willing to take market risks to achieve potentially higher returns, a Variable Life Insurance Policy may suit you.

Real life example of Variable Life Insurance

Meet Rahul, a 30-year-old software engineer from Mumbai. Rahul is married and has a one-year-old daughter. As a responsible father and husband, Rahul wants to ensure his family's financial security in case of any unfortunate event. After researching various life insurance policies, Rahul opts for a Variable Life Insurance policy. Here is how it works.

• Rahul chooses a Variable Life Insurance policy that offers a life insurance coverage of Rs. 1 crore and invests Rs. 10,000 per month. The policy has a lock-in period of 10 years, and Rahul plans to hold the policy for the long term to achieve potentially higher returns.

• Rahul's Variable Life Insurance policy has various investment options, including equity funds, debt funds, and balanced funds. Rahul decides to invest 60% of his monthly premium in equity funds and the remaining 40% in debt funds. As an avid investor, Rahul keeps a close eye on the market and adjusts his investment portfolio according to market conditions.

• Over the years, Rahul's investment in the Variable Life Insurance policy grows, providing him with a significant corpus that he can use for his daughter's education or his retirement. Rahul also benefits from tax savings under Section 80C of the Income Tax Act, which allows him to reduce his taxable income by the premium amount paid.

In case of any unfortunate event, Rahul's wife and daughter will receive the death benefit of Rs. 1 crore, providing them financial security and peace of mind. Rahul's Variable Life Insurance policy also allows him to nominate his wife and daughter as beneficiaries, ensuring they receive the death benefit without hassle.

Introducing ACKO Life Flexi Term Plan

ACKO Life Flexi Term Plan is a smart combo of term insurance and flexible coverage. Secure your family's financial future with options to tailor the plan as life changes:

• Adjust Coverage Amount: Modify the payout your family receives based on your financial status, yearly.

• Flexible Policy Duration: Customise how long your policy lasts, adjusting the term each year to match your preferences.

• Easy Payment Choices: Choose a payment schedule that suits you — monthly, quarterly, half-yearly, or yearly.

• Payout Preferences: Decide how your family gets the money, whether in monthly payments or a one-time settlement.

Enhance your ACKO Term Plan with these extra benefits

You can choose to add the following riders to your ACKO Life Flexi Term Plan.

• Critical Illness Rider: Extra protection for serious illnesses. Receive a lump sum for support during tough times. No worries about future premiums if you need to focus on recovery.

• Accidental Death Benefit Rider: Safeguard your loved ones with an extra payout in case of accidental death.

• Accidental Total Permanent Disability Rider:  Stay financially secure if a major accident leaves you unable to work or care for yourself. Get extra funds for daily expenses, and we'll waive off future premiums.

Choose the plan that suits you best for that added layer of security.

Frequently Asked Questions (FAQs)

Below are some of the frequently asked questions on Variable Life Insurance

Can I change my investment options in Variable Life Insurance in India?

Yes, you can change your investment options in Variable Life Insurance in India.

What happens if I miss a premium payment on my Variable Life Insurance policy in India? 

If you miss a premium payment on your Variable Life Insurance policy in India, your policy may lapse or become inactive.

Is Variable Life Insurance in India a good investment option for retirement planning? 

Yes, Variable Life Insurance can be a good investment option for retirement planning, depending on your specific needs and financial goals.

How do I choose the right insurance company for Variable Life Insurance?

To choose the right insurance company for Variable Life Insurance in India, you should compare the features, benefits, and charges of different policies offered by different insurers.

Can I surrender my Variable Life Insurance policy in India before the maturity date?

Yes, you can surrender your Variable Life Insurance policy in India before the maturity date, but you may have to pay surrender charges, and you will receive a surrender value, which may be lower than your invested amount. It's best to review your policy documents or consult with your insurance company to understand the surrender process and its implications.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.

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