We are working with a bunch of hypotheses here, the first being the hypothesis that you have a rate of return that will grow. With mutual funds, which are the typical investments for variable life insurance, the increase is contingent upon the performance of that particular area of the market.
Also, you need to be aware of fees, which the insuring agency can manipulate quite a bit. Thus, even in the best scenario (that in which your stocks do return 10%) you will generate less than 10%. And the best scenario is highly unlikely, given the recent rates.
And if the insurer talks about the idea of tax sheltering, he is correct; your profits from the policy are not taxed. There’s another benefit, too, that he will probably dangle in front of you: the returns on low-interest loans that get paid back once you die.
But what if the policy lapses and you are left with huge loans and a huge tax bill? The risks seem pretty high. And the picture that the insurer paints seems to be pretty complex. The idea of pairing investments and life insurance presents too many unknowns and too many difficulties to unravel.
Stick with 401(k) and IRA options. If you use these up, you might consider tax-managed mutual funds instead. If, after all of this, you find yourself still seriously interested, you should talk to a financial adviser, and have him investigate the possibility in detail for you.