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How Variable Life Insurance Works

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  1. The premium you "pour in" is fixed for the life of the policy. As you age, the cost of insuring your life increases. However, your premium stays the same, because the company projects this expense in advance and factors it into the premium at the onset.
  2. As you pay your premium, the insurance company deducts all of its expenses, premium taxes, and the cost of pure insurance (net amount of risk coverage), mortality cost.
  3. The remainder of your premium is credited to your cash value account.
  4. You choose the subaccounts in which your cash value is invested. These accounts are securities-based, though many policies offer a fixed account option.
  5. Significant growth in your subaccount investments can "pump up" your cash value.
  6. With the potential for rapid growth comes the possibility of loss. If your investment choices perform poorly, much of your cash value could go "down the drain."
  7. However, as long as you pay your premium, your policy amount will be guaranteed for the minimum amount (stated in your policy), regardless of the investment performance of your cash value account.
  8. You may take policy loans in an amount not to exceed the policy's cash surrender value less the annual loan interest. Repayment replenishes your cash value; any loan balance outstanding (plus interest due) at your death is deducted from the policy amount paid to your beneficiary.

Note: Variable life and variable universal life insurance policies are offered by prospectus, which you can obtain from your financial professional or the insurance company. The prospectus contains detailed information about investment objectives, risks, charges, and expenses. You should read the prospectus and consider this information carefully before purchasing a variable life or a variable universal life insurance policy.