Variable life is one kind of permanent insurance that lets you target your premium to one or more separate investment funds. These could be fixed income investments, or stocks, bonds, or a money market fund. Depending on company policy, you can switch your investments two to five times per year. Unlike universal life, with variable life you can control the investment of your cash value.

The policy could be risky because the investment could go up or down. The cash value and investment will vary, depending on what your investment fund does. The death benefit cannot fall below the amount of insurance you first bought. As with traditional whole life, you pay fixed premiums and can borrow against the policy at fixed or variable rates.

Because you decide where your money is invested and take the risk, variable life is considered a security. Insurers must, by law, sell variable life by prospectus. A prospectus is a document that gives you important facts about the company and the policy. Variable life often costs more than other types of cash value life insurance. Under current law the cash value of variable life, like those of universal life and whole life, will not be taxed until you cash in your policy.

A guaranteed minimum death benefit is stated but it may increase if the cash value of the policy goes up. The cash value of variable life is invested in your choice of stocks, bonds, money- market funds, and any combination. If your investment choice performs well, the cash value of your variable life policy increases, but a minimum cash value may be guaranteed. Premiums are fixed and level; they are roughly the same as what you would pay for whole life. Many variable life policies also include an annuity feature. Sales people for variable life must be registered with the National Association of Securities Dealers.

If your investments do well, your potential gain with variable life can be great. Cash value of the policy can be divided if you choose to spread the risk among several types of investment vehicles. You can change the "mix" of your investments a stated number of times per year with no charge. No capital gains are due when you switch funds and any gains are tax-deferred. You can borrow the cash value of the policy at competitive or lower than market rates.

A disadvantage of variable life is that you may forfeit the entire cash value of the policy if your chosen investment "mix" performs poorly. Your contract is effectively rewritten if you make partial withdrawals. You receive investment performance reports but no reporting of how your total life insurance premium is spent. In the early years of the policy, the cash surrender value is small because much of the premium you pay goes to cover company expenses and fees. Variable life is best considered a long-term, big-ticket financial commitment.