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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Nupur Gambhir

Nupur Gambhir

Senior Editor & Licensed Life Insurance Expert

Nupur Gambhir is a licensed life, health, and disability insurance expert and a former senior editor at Policygenius. Her insurance expertise has been featured in Bloomberg News, Forbes Advisor, CNET, Fortune, Slate, Real Simple, Lifehacker, The Financial Gym, and the end-of-life planning service Cake.

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Maria Filindras

Maria Filindras

Financial Advisor

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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Key Takeaways

  • Variable and universal life insurance are both types of permanent life insurance, meaning they last your whole life.

  • The key difference between variable and universal life insurance is the way the cash value grows.

  • While variable life insurance gives you investment options to grow your cash value, the cash value in a universal life insurance policy grows at a rate set by the insurer.

Variable and universal life insurance are both types of permanent life insurance that last for life and include a cash value component. However, the two types of policies differ in how the cash value functions. 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 and style. Talk to a certified financial planner to help you determine which policy fits into your financial strategy.

Comparing variable life insurance and universal life insurance

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

Policy detailsVariable life insuranceUniversal life insurance
DurationLifeLife
Guaranteed death benefitYesyes
Guaranteed cash valueNoProtected from risk, but can be depleted to pay premiums
How cash grows (or shrinks)Sub-accounts - pool of investor funds offered by insurerFixed interest rate
PremiumsLevelVaries, up to the customer (subject to federal tax laws)

Similarities between variable life insurance and 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. 

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Differences between variable life insurance and universal life insurance

As we 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 towards 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. 

Frequently asked questions

Is universal life the same as variable life?

Universal life insurance and variable life insurance are two different types of permanent policies. They both last your entire life, but the way their cash value accumulates is different.

What is the benefit of a variable life policy as compared to a universal life policy?

Both variable life and universal life insurance have their own benefits. Variable life has fixed premiums that you can predict for the entirety of the policy, while universal life insurance has flexible premiums that can be paid for with the cash value. Both also accumulate cash value that you can use while you are alive.

Is permanent or term life insurance better?

Term life insurance is the most affordable option for most people, but people with specific investing needs may use variable or universal life insurance. You should consult a certified financial planner before purchasing either policy, as they can be very complicated.