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When comparing universal vs. variable life insurance, the main differences are the death benefit and cash value. Universal variable life offers a flexible death benefit but slower cash value growth, while variable life has a guaranteed death benefit and a greater potential for cash value growth.

Although both life insurance policy types have their uses, and you may be debating between variable life and universal life, both are best for high-income earners with at least some investment knowledge or access to a professional investment manager. They are usually not the most economical choice for many life insurance shoppers.

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What Is the Difference Between Variable & Variable Universal Life Insurance?

The difference between variable life and variable universal life insurance is the death benefit options and cash value growth potential. A VUL account gives you the option to increase or decrease the death benefit, while variable life provides the option to increase the premium or cash value of the death benefit. The VUL account can have greater cash value growth but can experience market losses, which may reduce the death benefit.

Variable vs. Variable Universal Life Insurance

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Variable Life Insurance
  • Has a guaranteed minimum death benefit
  • Can add cash value or premiums paid to increase the death benefit
  • Market losses can lower the death benefit
  • Investments can accelerate cash value growth
  • Can have higher management fees
  • Has fixed premium payments
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Variable Universal Life Insurance
  • No guaranteed death benefit
  • Can lower or raise death benefit as life needs change
  • Cash value growth is slower and not guaranteed
  • May have more manageable fees
  • Has adjustable premium payments

Although the names are almost identical and they are both types of permanent life insurance, variable life and VUL insurance are not the same policy. Also, variable life insurance or variable whole life insurance is not a universal life policy — universal life has a guaranteed death benefit, but you can adjust the death benefit and premium payments. While it has greater cash value accumulation potential, it can also lose cash value and lower the death benefit.

Features of Variable Life Insurance vs. Variable Universal Life Insurance
Feature
Variable Life Insurance
Variable Universal Life Insurance

Length of
Coverage

As a permanent life insurance
policy, a variable life insurance
policy is designed to last your
lifetime, as long as premiums are
paid.

VUL is a permanent life insurance policy
with continuous premium payments
required to maintain the death benefit.
Changes to the death benefit can affect
premiums owed.

Cash Value

This life policy has high earning
potential but can also lose cash
value depending on market
fluctuations in the sub-accounts.
Cash value grows tax-deferred, but
removing cash can trigger a taxable
event.

This variable life insurance policy
provides the opportunity to choose your
investments, which will affect how fast
your cash value grows. The cash value
growth is tax-deferred until removed,
which could trigger a taxable event.

Death
Benefit

The death benefit has a guaranteed
minimum amount determined at the
start of the policy, which is safe from
market fluctuations. You can also
choose a face-value death benefit
option, which is the face value
amount plus cash value or face
value amount plus premiums paid.
Choosing the latter two may result
in a higher premium for the life of
the policy.

The death benefit usually does not have
a guaranteed minimum; it is flexible
throughout the life of the policy. As life
situations change insurance coverage
needs, you can increase or decrease the
death benefit, which will likely affect the
premium amount owed. The policy does
not have the option to include the cash
value or paid premiums in the death
benefit.

Premium
Payments

Premium payments are fixed from
the start of the policy. Failure to
make the agreed-upon premium
payments could cause the policy to
lapse.

Premium payments are flexible and can
be adjusted, even when the death
benefit is not. This policy has a high
chance of lapsing when lowering the
premium payments unless the cash
account has enough value to offset the
lower premium.

Dividend
Eligibility

Although this is a permanent policy,
it is not eligible for dividends, even
when placed with a mutual
insurance company that participates
in dividend disbursement.

This policy is not eligible for dividends,
even when issued by a participating
mutual insurance company.

Rider
Eligibility

This policy is eligible for riders, such
as the accelerated death benefit
rider, but rider availability can vary
by carrier and policy plan details.
Adding riders will likely increase the
premium amount.

This policy is eligible for riders, which
can vary by carrier and policy plan
details. For example, you may want a
rider to cover disability, which requires
finding a company that offers it with
VUL. You should expect to pay more
when including a rider.

Use for
Estate
Planning

Out of the two variable life
insurance policies, this policy is
more ideal for estate planning, as it
has a guaranteed minimum death
benefit your beneficiary can depend
on.

This policy is not ideal for estate
planning
as it does not have a
guaranteed death benefit. Any death
benefit or premium changes could cause
the policy to lapse, which would remove
its role in estate planning.

Should You Get Variable or Variable Universal Life Insurance?

Are you wondering whether you should get variable life insurance or variable universal life insurance? Both policies are best for investment-savvy, high-income earners with a healthy risk tolerance. Variable life is a great choice if you want a guaranteed minimum death benefit and predictable life insurance premium rates. Variable universal life is ideal for those who want more investment control and the ability to change the premium or death benefit.

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    Variable life insurance is best for:

    • High-income earners with maximized savings options
    • People who want death benefit options
    • Someone wanting greater cash value growth potential
    • People who are okay with market fluctuations that can negatively affect the death benefit and cash value
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    Variable universal life insurance is best for:

    • High-income earners who have already maxed out other savings options
    • People who want to choose and closely monitor market conditions
    • Someone who wants a flexible premium and death benefit
    • People who understand how death benefit and premium changes can cause the policy to lapse

Both variable life insurance and variable universal life are best for high-income earners with a deep knowledge of the market and its volatility or an advisor that can manage the account for them. For the vast majority of insurance shoppers, we recommend term life insurance because it's the cheapest option, and then investing the premium savings separately. Consider these term life insurance companies when researching your coverage options.

If you still believe permanent life insurance is your best option, you should look at our rankings of the top companies for whole life insurance and universal life insurance to help you make your decision.

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Frequently Asked Questions

We hope this article helps you when considering universal vs. variable life insurance. Here are answers to some of the most common questions about variable life insurance and variable universal life insurance.

About Mandy Sleight, Licensed Insurance Agent


Mandy Sleight, Licensed Insurance Agent headshot

Mandy Sleight is a licensed insurance agent and has worked in the industry since 2005. She has her property, casualty, life and health licenses. Mandy has worked for well-known insurance companies like State Farm and Nationwide Insurance, and most recently as the Operations Coordinator for a startup employee benefits company.

Mandy earned her Bachelor of Science degree in Business Administration and Management from the University of Baltimore and her Master of Business Administration from Southern New Hampshire University. She uses her vast knowledge of the insurance industry and personal finance combined with her writing background to create easy-to-understand and engaging content to help readers make smarter choices with their budgets and finances.