Variable vs. universal life insurance

Variable and universal life insurance are very similar, but differ in the way the cash value grows.

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Andrew HurstSenior Editor & Licensed Insurance ExpertAndrew Hurst is a former senior editor at Policygenius who has spent his entire career writing about life, disability, home, auto, and health insurance. His work has been featured in The New York Times, The Wall Street Journal, the Washington Post, Forbes, USA Today, NPR, Mic, Insurance Business Magazine, and Property Casualty 360.

Edited by

Antonio Ruiz-CamachoAntonio Ruiz-CamachoAssociate Content DirectorAntonio is a former associate content director who helped lead our life insurance and annuities editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.
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Reviewed by

Maria FilindrasMaria FilindrasFinancial AdvisorMaria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

Updated|1 min read

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Variable and universal life insurance are both types of permanent life insurance that last for life and include a cash value component. However, the cash value in variable life insurance has investment options and works like a mutual fund. Meanwhile, the cash value in universal life insurance grows based on the interest rate set by the insurer.

When choosing between variable and universal life insurance, the policy you should get depends on your investment needs. Talk to a certified financial planner to help you determine which policy fits into your financial strategy.

Life insurance terms you should know
  • Beneficiaries: The people you name on your life insurance policy to receive the lump sum of money — also known as the death benefit — when you die.

  • Cash value: The portion of a permanent life insurance policy’s monetary value that grows tax-deferred over the life of the policy.

  • Death benefit: The amount of money the life insurance company will pay your beneficiaries when you die.

  • Face amount: The dollar amount, or death benefit, your beneficiaries receive if you die while your life insurance policy is active.

  • Insured: The person who is covered by the insurance policy.

  • Policy: The legal document that includes the terms and conditions of your life insurance contract.

  • Policyholder: The person who owns an insurance policy. Usually, this is the same person as the insured.

  • Permanent life insurance: A type of life insurance that lasts for the rest of your life and usually includes a cash value account.

  • Premium: The amount you pay your insurance company to keep your coverage active. Premiums are typically paid monthly or annually.

  • Riders: Add-ons to a life insurance policy that provide more robust coverage, sometimes for an extra cost.

  • Term life insurance: A life insurance policy that lasts for a set number of years before it expires. If you die before the term is up, your beneficiaries receive a death benefit.

  • Underwriting: The process where an insurance company evaluates the risk of insuring you and determines your final rate.

Comparing variable life insurance & universal life insurance

The chart below shows how variable life insurance and universal life insurance differ:

Policy details

Variable life insurance

Universal life insurance

Duration

Life

Life

Guaranteed death benefit

Yes

Yes

Guaranteed cash value

No

Protected from risk, but can be depleted to pay premiums

How cash grows (or shrinks)

Sub-accounts — pool of investor funds offered by insurer

Fixed interest rate

Premiums

Level

Varies, up to the customer (subject to federal tax laws)

Similarities between variable life insurance & universal life insurance

Variable life insurance and universal life insurance are similar in a few key ways:

  • They both last for life. The most prominent shared aspect of variable and universal life insurance is that they’re both permanent life insurance policies.

  • They both have a guaranteed death benefit. A guaranteed death benefit is a key feature of a life insurance policy, and both variable and universal policies offer that.

  • They both have a cash value. The other shared component of all permanent life insurance policies is called the cash value, and the cash value in both universal and variable life insurance grows tax-deferred. 

Differences between variable life insurance & universal life insurance

As mentioned, variable life insurance and universal life insurance differ in how the cash value is used.

  • The cash value grows differently. Universal life insurance has unpredictable interest rates that change based on the market. Variable life insurance has more predictable rates because you choose which sub-accounts grow your cash value.

  • Universal life has flexible premium payments. Universal life insurance is unique because you can use the cash value growth toward premium payments. If you have enough cash value growth, you may not need to pay any premiums at all.

Which policy should you get?

If you’re choosing between a variable or universal life insurance policy, talking to a certified financial planner about what works best for your financial strategy is very important. Even though they both have a cash value component, they grow differently and the policy you decide on will impact your financial portfolio. 

You also don’t have as much control over your investments in a cash value life insurance policy as you would with traditional investments, like stocks and mutual funds. These options should really only be utilized if you have maxed out other investments. Most people should simply get a traditional term life insurance policy and invest the difference. 

Author

Andrew Hurst is a former senior editor at Policygenius who has spent his entire career writing about life, disability, home, auto, and health insurance. His work has been featured in The New York Times, The Wall Street Journal, the Washington Post, Forbes, USA Today, NPR, Mic, Insurance Business Magazine, and Property Casualty 360.

Editor

Antonio is a former associate content director who helped lead our life insurance and annuities editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.

Expert reviewer

Maria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

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