Universal vs. Variable Life Insurance: What to Know

Choosing life insurance is an important but difficult decision, as you are faced with selecting the right plan to protect your family’s future. Universal and variable life insurance might sound like similar stops along the way, but they offer distinctly different benefits depending on your financial goals. These aren’t the only types of life insurance, but they are certainly the most common—understanding the nuances between them can make all the difference, ensuring your choice aligns with the future you’re working toward.

Universal life insurance is the multi-tool of life insurance policies—flexible and practical for a variety of situations. It’s actually fairly simple: a permanent life insurance plan that lets you adjust your premiums and death benefits as your financial needs evolve. Universal life insurance tends to be characterized by cash value accumulation which grows over time at a guaranteed minimum interest rate. Solid, safe, dependable.
One of the biggest benefits that draw people is adaptability, wherein the policy can be tweaked and changed as your budget shifts or your priorities change. Further, with its predictable growth, universal life insurance is reliable. It offers a reliable way to build a financial safety net while keeping things steady and straightforward without relying on factors beyond your control.

Variable life insurance is unique in that it includes investment potential. This policy goes beyond just providing a death benefit—it allows you to allocate a portion of your premiums into sub-accounts that function like mini-investment portfolios. These sub-accounts can include standard investment options like stocks, bonds, or money market funds. This gives you the chance to grow your cash value more aggressively while you’re alive.

Here’s a quick breakdown of the biggest differences, head to head:

With universal life insurance, you can adjust your premiums and death benefit as your financial situation changes—think of it as the policy that grows with you. For example, if you face unexpected expenses, you could reduce your premium payments temporarily without losing coverage. Variable life insurance, on the other hand, is less flexible. While it offers investment options, the premiums and death benefits are more rigidly tied to your policy’s performance in the market.

Universal life insurance offers a guaranteed minimum interest rate on its cash value which naturally caters towards cautious individuals by parking money in a safe, predictable spot. Variable life insurance, however, is for those comfortable with risk. Its cash value depends on market performance—meaning the returns could soar or stumble. If the market thrives, you win big; if it dips, your cash value could shrink.

If you’re seeking steady, predictable growth, universal life insurance delivers. Over time, the cash value reliably grows, providing a financial safety net. But if you’re chasing higher returns and can stomach the ups and downs, variable life insurance is the choice for you. By investing in sub-accounts like stocks or bonds, variable life insurance opens the door to significant growth opportunities—though nothing is guaranteed. Imagine having a diversified investment portfolio alongside your insurance policy; that’s the allure of variable life.

If you’re looking for other options beyond universal and variable life insurance, there are several other types that might suit your situation.

• Mortgage/Credit Life Insurance: Mortgage or credit life insurance is a specific policy that can be purchased in tandem with a loan (normally a home loan). When the individual dies, the insurance is paid to the lender to pay back the loan rather than to beneficiaries in the individual’s family.
• Joint Life Insurance: Joint life insurance is a policy that covers two individuals, normally spouses, under one single plan. It can be designed to pay off after the first spouse dies or to the listed beneficiaries after both die.
• Term Life Insurance: For the lowest cost life insurance, term life insurance offers the ability to buy insurance for a prescribed period, rather than for your entire life. They are typically sold in 1, 3, 5, 10, 15, and 30-year terms. Individuals buying this type of insurance will select a term that corresponds with the length of their prime working years.

Deciding between universal and variable life insurance is key to building a financial safety net that suits your goals while you’re alive and after you have passed. For personalized guidance on Fort Collins insurance planning, contact Dunnigan Financial today!