Enter the coverage amount in your selected currency.
History:

Explanation

What is Variable Life Insurance?

Variable life insurance is a type of permanent life insurance that combines a death benefit with an investment component. The cash value of the policy can be invested in various options, such as stocks and bonds, which can lead to varying returns. This means that the policyholder has the potential for growth, but also assumes the risk of loss.

How to Calculate the Cost of Variable Life Insurance?

The cost of a variable life insurance policy can be influenced by several factors, including:

  1. Coverage Amount (C): The total amount of insurance coverage you want.
  2. Insured Age (A): The age of the person being insured.
  3. Gender (G): The gender of the insured, which can affect the cost.
  4. Policy Term (T): The duration for which the policy is active.
  5. Investment Strategy (IS): The approach taken for investing the cash value (e.g., conservative, moderate, aggressive).
  6. Expected Return (ER): The anticipated annual return on investments, expressed as a percentage.
  7. Management Fees (MF): The fees charged for managing the investments, also expressed as a percentage.

The formula to estimate the total cost (TC) of a variable life insurance policy is:

§§ TC = C \times (ER - MF) \times T §§

where:

  • § TC § — total cost of the policy
  • § C § — coverage amount
  • § ER § — expected return (as a decimal)
  • § MF § — management fees (as a decimal)
  • § T § — policy term in years

Example Calculation

Let’s say you want to calculate the cost of a variable life insurance policy with the following parameters:

  • Coverage Amount (§ C §): $100,000
  • Expected Return (§ ER §): 5% (0.05)
  • Management Fees (§ MF §): 1% (0.01)
  • Policy Term (§ T §): 20 years

Using the formula:

§§ TC = 100000 \times (0.05 - 0.01) \times 20 = 100000 \times 0.04 \times 20 = 80000 §§

The total cost of the policy would be $80,000 over the 20-year term.

When to Use the Cost per Variable Life Insurance Calculator?

  1. Financial Planning: Assess the long-term costs associated with variable life insurance to make informed decisions about your financial future.
  2. Insurance Comparisons: Compare different insurance policies based on their costs and benefits.
  3. Investment Strategy Evaluation: Analyze how different investment strategies can impact the overall cost of your insurance policy.
  4. Budgeting: Determine how much you need to allocate for insurance costs in your overall financial plan.

Key Terms Defined

  • Coverage Amount (C): The total sum that the insurance company will pay to the beneficiaries upon the insured’s death.
  • Expected Return (ER): The anticipated profit from investments made with the cash value of the policy.
  • Management Fees (MF): The costs associated with managing the investments within the policy, which can reduce overall returns.
  • Policy Term (T): The length of time the insurance policy is in effect.

Practical Examples

  • Retirement Planning: An individual may use this calculator to estimate the costs of maintaining a variable life insurance policy as part of their retirement strategy.
  • Family Protection: A family might evaluate how much coverage they can afford based on their financial situation and investment goals.
  • Investment Decisions: Investors can assess how different management fees and expected returns affect the overall cost of their life insurance.

Use the calculator above to input different values and see how the total cost of your variable life insurance policy changes dynamically. The results will help you make informed decisions based on your financial goals and needs.