Fixed vs. Variable Life Insurance: Which is better?

Jun 12


Jane Scaplen

Jane Scaplen

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Life insurance is a crucial component of financial planning, providing a safety net for your loved ones in the event of your untimely death. When choosing life insurance, you will encounter various types, each with its own features, benefits, and drawbacks. Two popular types are fixed life insurance and variable life insurance. Understanding the differences between these two can help you make an informed decision.

Fixed Life Insurance

Fixed life insurance,Fixed vs. Variable Life Insurance: Which is better? Articles also known as whole life insurance, provides a guaranteed death benefit and a guaranteed cash value accumulation. The premiums remain fixed throughout the life of the policy, and the policy remains in force as long as premiums are paid.

Key Features of Fixed Life Insurance:

  1. Premiums: Fixed premiums that do not change over the life of the policy.
  2. Cash Value: A guaranteed cash value component that grows at a predetermined rate.
  3. Death Benefit: Guaranteed death benefit for beneficiaries.
  4. Policy Duration: Coverage for the insured’s entire lifetime.
  5. Loans and Withdrawals: Policyholders can borrow against or withdraw from the cash value.

Pros of Fixed Life Insurance: 

  • Predictable premiums and benefits.
  • Guaranteed cash value growth.
  • Lifetime coverage.
  • Potential to receive dividends (for participating policies).

Cons Pros of Fixed Life Insurance:

  • Higher premiums compared to term life insurance.
  • Limited flexibility in investment options.

Variable Life Insurance

Variable life insurance offers a death benefit and a cash value component, with the latter being invested in a variety of investment options like stocks, bonds, and mutual funds. The cash value and death benefit can fluctuate based on the performance of these investments.

Key Features of Variable Life Insurance:

  1. Premiums: Flexible premiums, though typically higher than term insurance.
  2. Cash Value: Cash value depends on the performance of chosen investments.
  3. Death Benefit: Death benefit can vary based on investment performance but usually has a guaranteed minimum.
  4. Investment Options: Policyholders can choose from a range of investment options for the cash value.
  5. Policy Duration: Lifetime coverage as long as premiums are paid.

Pros of Variable Life Insurance:

  • Potential for higher cash value growth.
  • Investment control and flexibility.
  • Lifetime coverage with the potential for increased death benefit.

Cons of Variable Life Insurance:

  • Higher risk due to market fluctuations.
  • Higher fees and expenses.
  • Requires active management and understanding of investments.

Comparison: Fixed vs. Variable Life Insurance

Feature Fixed Life Insurance Variable Life Insurance
Premiums Fixed Flexible
Cash Value Guaranteed growth Variable, depends on investments
Death Benefit Guaranteed Variable, but usually with a minimum guarantee
Investment Options None Multiple, chosen by policyholder
Risk Level Low High
Policy Duration Lifetime Lifetime
Management Minimal Active
Cost Generally higher Higher due to fees and investment costs
Flexibility Low High

Frequently Asked Questions Related to Fixed vs. Variable Life Insurance

1. Which is better, fixed or variable life insurance? 

The better option depends on your financial goals, risk tolerance, and investment knowledge. Fixed life insurance offers stability and guaranteed growth, while variable life insurance provides growth potential and flexibility but comes with higher risk.

2. Can I switch from fixed life insurance to variable life insurance? 

Switching policies can be complex and might involve fees and medical examinations. Consult with your insurance agent or financial advisor to understand the implications and options available.

3. How does the cash value in variable life insurance work? 

In variable life insurance, the cash value is invested in various investment options chosen by the policyholder. The cash value can grow based on the performance of these investments, but it can also decrease if the investments perform poorly.

4. Are there tax benefits to these types of life insurance? 

Both fixed and variable life insurance policies offer tax-deferred growth of the cash value. The death benefit is generally tax-free to beneficiaries. However, withdrawals or loans from the cash value may have tax implications.

5. What happens if I can’t pay the premiums? 

For fixed life insurance, if you can't pay the premiums, the policy may lapse, but there are often options like using the cash value to pay premiums. For variable life insurance, insufficient premium payments might reduce the death benefit or exhaust the cash value, leading to a lapse.

6. Is variable life insurance suitable for everyone? 

Variable life insurance is typically suitable for those with a higher risk tolerance, investment knowledge, and a desire for potential growth in their cash value. It may not be ideal for individuals seeking stable, predictable insurance coverage.


Choosing between fixed and variable life insurance depends on your financial objectives, risk tolerance, and understanding of investment options. Fixed life insurance provides stability and guaranteed benefits, while variable life insurance offers growth potential and flexibility at a higher risk. Carefully assess your needs and consult with a financial advisor to select the best policy for you and your family's future.