Whole life insurance and universal life insurance are similar in some ways but the main difference is that universal life insurance is like an investment. The cash value of a universal life insurance policy earns interest. There is likelihood for elevated cash growth if the market outperforms the insurer’s general account. Some insurance companies offer guaranteed minimum interest payment. Universal life insurance provides protection for your family by offering guaranteed death benefits. You can also withdraw money from the cash value. However every time you make a withdrawal from the cash value, the death benefit decreases. If the cash value of the policy and the premium payments aren’t enough to cover the cost of the insurance, the death benefit will lapse and no longer be available. It is flexible compared to whole life insurance. Most universal life insurance policies have optional term riders which allow you to temporarily increase your benefits amount without purchasing a new policy. You can also usually add people to the policy, like a spouse or children. The capital gains taxes on universal life insurance can be deferred and the gains can be kept in the cash value of the policy until the time of death, and will only be subject to estate taxes.

The premium in a universal life insurance policy is divided in to two parts. One part covers the cost of insurance and while the other becomes part of the cash value which earns interest. There are three kinds of premiums:

1. Single Premium – You pay one amount for the entire policy. The policy remains effective as long as the cost of insurance does not entirely deplete the cash value or investment.
2. Fixed Premium - You make monthly payments for the premium for specified period which is agreed in advance. The policy terminates when you stop paying the premiums.
3. Flexible Premium - You can decide when to make payments and how much. The cost of insurance is deducted from the cash value of the policy for the period you do not pay the premium.

In a universal life insurance policy, the death benefit can be increased or decreased without giving up the policy or starting a new one. The premium payments can be made in a wide range from a small minimum amount to a maximum amount allowed by the IRS. Universal life insurance is for those who like to prepare for the future.