Variable Life Insurance vs. Variable Universal Life Insurance: What’s the Difference & Which One Should You Get?

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.

Cash Value: This 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.

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.

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

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.

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

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

Length of Coverage: 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 variable life insurance policy allows you 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 usually does not have a guaranteed minimum; it is flexible throughout the policy's life. 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 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: This policy is not eligible for dividends, even when issued by a participating mutual insurance company.

Rider Eligibility: This policy is eligible for life insurance riders, which can vary by carrier and plan. 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 adding a rider.

Use for Estate Planning: 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.