Variable vs. universal life insurance

Choosing between two permanent life insurance options.

Zack Sigel


Zack Sigel

Zack Sigel

Managing Editor

Zack Sigel is a managing editor at Policygenius who oversees our mortgages, taxes, loans, banking, and investing verticals.

Published July 17, 2018|3 min read

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Variable and universal life insurance are both types of permanent life insurance, meaning the policies last for life and contain a cash-value component. But though variable and universal life are similar, there are a few key differences.

Variable life insurance is a type of permanent life insurance with a cash value and with investment options that work like a mutual fund.

Universal life insurance is a type of permanent life insurance with a cash value that grows based on the current interest rate set by the insurer.

Comparing variable life insurance and universal life insurance

Variable life insurance and universal life insurance are both types of permanent life insurance with subtle differences in how the cash-value component grows.

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

  • 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 tenet 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.

However, even though variable and universal life insurance have a cash-value component, they aren’t used in the same way.

Differences between variable life insurance and universal life insurance

  • The cash value grows differently The key difference between these two policy types is how the cash value of the policy is invested and grows.

Universal life insurance has unpredictable interest rates. The policy outlines a minimum interest rate, but that can change based on the market.

Variable life insurance has a number of different investment options, ranging from stocks to mutual funds to bonds and more, and you choose several sub-accounts to grow your cash value.

  • Universal life offers more flexibility Universal life insurance is unique in that it gives policyholders flexibility with premium payments and death benefit.

Your policy has a minimum premium you need to pay to keep it in force, but with universal life, you can use any gains from the cash-value component to pay the premium. If you have enough money in the cash value, you can even "skip" premium payments entirely.

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Who is universal life insurance and variable life insurance for?

Term life insurance is enough for most people, but if you’re going to choose a permanent life insurance policy it’s important to know the differences between them. Just because they both have a cash-value component doesn’t mean they’re the same, and the differences can have a big impact on your financial well-being.

You also don’t have control over your investments when it comes to the cash-value component of a permanent life insurance policy. If you invest on your own, you can choose between stocks, mutual funds and more to find the right mix that meets your needs and risk tolerance.

In short: Universal life insurance is only really worth it if you’re going to take advantage of its flexibility, and a variable life insurance policy works best if you can take advantage of the investment options.

A variable life insurance policy gives you control over your investments relative to other permanent life insurance policies, but you’re still limited by what’s offered with the policy.

What you end up with is life insurance that’s more complicated than what most people need, and an investment option that usually won’t get the returns you would by investing on your own.

Read more about term vs. whole life insurance.

What is variable universal life insurance?

There is also a policy type that combines the variable life insurance and universal life insurance: variable universal life insurance.

Like universal life insurance, you can adjust the premium and death benefit of your policy. Like variable life insurance, there are sub-accounts in which you can invest. There’s a lot of potential with a variable universal life insurance policy, because it comes with the options and flexibility of its parent policies, but it also takes more effort to get the most value.