Variable Life Illustrations and the Problem of Stock Volatility

by Peter Katt

Variable life insurance has various equity and fixed-income subaccounts from which policyowners select for the investment of their policy’s cash values.

A life insurance policy investment strategy that uses primarily fixed-income instruments is best done via whole or universal life. On the other hand, variable life policy expenses are high compared with whole life and universal life, so with variable life it makes sense to predominately select equity subaccounts, to reach for higher investment returns to recoup the higher expenses.

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Yet that selection presents a serious problem, because returns for equities are volatile and unpredictable, with years of large gains and losses. This combination of equity volatility and life insurance is a very bad mixture that I have written about on three prior occasions.

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