To risk or not to risk is the big question when choosing between variable life insurance and whole life insurance. It can be confusing to pick between the two, especially when you want a life insurance plan that not only protects your family but also helps you save money for the future. While both provide lifelong coverage, let’s look at how each of these plans works, what kind of risks are involved, and which one may suit your financial goals better.
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Variable life insurance is a type of permanent life insurance that also gives you the chance to invest. A portion of your premium is added to the cash value component, but unlike traditional policies, it is invested in market-linked funds such as equity, debt, or balanced funds, based on what you choose. The returns you receive and how much your policy grows depend on the market performance.
How It Works
Remember that the term Variable Life Insurance is not commonly used in India. A variant with nearly all of the same features is offered in India under the name ULIP (Unit-Linked Insurance Plan). These products are similar as they combine life cover and market-linked investment options, but they are referred to differently based on regional terminology and regulations.
Whole life insurance is another type of permanent life insurance but with a built-in cash value. Unlike in variable life insurance, your cash value doesn’t go into market-linked investments. Instead, it grows at a guaranteed rate, and some plans may also offer additional bonuses declared by the insurer. This means the money grows steadily over time, providing a guaranteed amount you can borrow against or withdraw from later if needed.
How It Works
Let’s take a look at a side-by-side comparison to understand the difference between variable life vs whole life insurance better:
| Feature | Variable Life Insurance | Whole Life Insurance |
| Coverage | Lifetime, as long as premiums are paid | Lifetime, as long as premiums are paid |
| Premiums | Fixed in most plans; may be flexible in some variants | Fixed throughout the policy term |
| Cash Value Growth | Grows based on market performance | Grows at a fixed rate |
| Risk Level | Moderate to high-risk | Low risk |
| Investment Control | The policyholder chooses where the money is invested | Managed by insurer |
| Returns | Can be higher, but not guaranteed | Fixed and guaranteed |
| Death Benefit | Sum assured with market-linked investment value | Sum assured with accumulated cash value |
Priya takes a variable life policy with ₹25 lakhs cover and chooses to invest in high-growth equity funds. Over time, her fund value grows to ₹12 lakhs. If she passes away, her nominee receives ₹25 lakhs (sum assured) plus ₹12 lakhs (fund value). However, if the market underperforms, the returns may drop.
Note: The death benefit payout depends on the specific policy terms. It is important to check your plan details.
Arvind buys a whole life insurance policy with a cover of ₹30 lakhs. A part of his premium is added to the policy’s cash value and grows at a fixed rate. After 20 years, the cash value grows to ₹10 lakhs. If Arvind needs money, he can take a loan against this amount. When he passes away, his nominee receives the ₹30 lakhs death benefit and any remaining bonuses, minus any unpaid loan amounts.
It is important to understand the advantages and disadvantages of a variable life insurance policy before selecting a plan.
Offers lifelong coverage along with investment options
Flexibility to choose funds, such as equity, debt, or balanced, etc.
Potential for higher returns compared to fixed-rate policies
Cash value can be accessed through loans or partial withdrawals
Suitable for those comfortable with market-linked products
Returns are not guaranteed and depend on market performance
Risk of capital loss in case of poor fund performance
Requires active monitoring and some investment knowledge
Charges, such as fund management or mortality, can reduce returns
Can be complex to understand for new buyers
Similarly, with a whole life insurance policy, it is important to weigh the advantages and disadvantages before choosing a plan.
Offers lifelong coverage with a guaranteed death benefit
Cash value grows at a fixed rate, providing stability
Predictable returns with low or no investment risk
Can be used for savings, loans, or withdrawals
Premiums are higher compared to term insurance
Fixed growth may be lower than market-linked returns
Lesser potential for growth compared to market-linked plans
May offer limited flexibility in adapting to changing needs
Choosing between variable life insurance vs whole life insurance comes down to your financial goals, risk appetite, and how involved you want to be in managing your policy.
Also consider:
-Your age and earning potential
-Whether you have other market-linked investments, such as mutual funds or ULIPs
-How long do you plan to invest
-Who is financially dependent on you
Both whole life and variable life insurance offer lifelong coverage and a way to build financial value, but they serve different purposes. Whether you prefer stability or are open to taking some risk for higher returns, you can choose between the two based on what fits your long-term goals and financial lifestyle.
When comparing Variable Life Insurance vs Whole Life Insurance, it’s not about which one is better; it’s about which one is right for you.
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Reviewed by Vaibhav Kumar Kaushik 
Acko Technology & Services Private Limited
#36/5, Hustlehub One East, Somasandrapalya, 27th Main Rd, Sector 2, HSR Layout, Bengaluru, Karnataka 560102
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