The number one reason people buy life insurance is to cover for final expenses.

Providing coverage for final expenses such as funeral costs, debts and taxes eases the financial burden for the people left behind.

There is another reason for buy life insurance.  Covering for final expenses is important but equally important is  replacing the financial support that you provided your loved ones before your death.

Life insurance can be used to pay for final expenses plus help to leave your loved ones financially secure after your death.    This can be accomplished with either variable life insurance or universal life insurance or term life insurance.

Each type of policy provides different features and benefits, let’s explore the differences between the variable life insurance and universal life insurance policies.

What Should You Know About Variable & Universal Life Insurance:

Cash Value: A Financial Resource

  • Variable and Universal life policies accumulate cash value.
  • The cash value can be used by the insured during his/her lifetime.
  • At any time while the insurance policy is active, the insured may surrender the policy for the cash value.
  • The insured can also borrow against the cash value.
  • Funding a child’s college education or to make a down payment on a new home are some ways in which the cash value of a life insurance policy can be used.
  • If a loan is taken, the insured is not required to repay that loan.
  • But, any unpaid loan balance will reduce the cash value and the death benefit.
  • The cash value can also be used by your loved ones at the time of your death as a financial resource .

Cash Value: Variable Life Insurance Policies

  • The cash value is subject to market risk.
  • The cash value is invested in sub-accounts similar to mutual funds.
  • The sub-accounts are invested in funds of equities, bonds and cash funds.
  • The insured decides where to invest.
  • The cash value fluctuates with the performance of the market.

Cash Value: Universal Life Insurance Policies

  • The cash value grows by interest payments from the insurance company.
  • The cash value will not experience the market fluctuations that a Variable Life Insurance policy will.
  • Insurance companies offer a guaranteed minimum interest on Universal Life insurance policies.
  • Guaranteed minimum interest means that regardless of how the investment performance, the insurance company guarantees you a minimum amount of return.

Taxation: Variable & Universal Life Policies

  • The cash value of your life policy gets taxed.
  • Cash value is growth.
  • The IRS considers the cash value from a life insurance policy to be income.
  • Cash value of a life insurance policy has never been taxed before; and the IRS wants their money.
  • The tax on the growth of your cash value is tax deferred until withdrawal.
  • The death benefit is tax-free to the beneficiaries.

Premium Payments: Variable & Universal Life Policies


  • A permanent type of life insurance policy.
  • Premium payments are made for the life of the policy.
  • A variable life insurance policy does not offer a flexible premium payment option.


  • A permanent type of life insurance policy.
  • Premium payments are made for the life of the policy.
  • A universal life insurance policy does allow for flexible premium payment options as long as the insured meets certain policy minimums.
  • The minimum requirement will vary depending upon the life insurance company.

Both variable and universal life insurance policies can be a good financial foundation for you to build from.   The purpose of life insurance is to protect your loved ones financially in the event of your death by covering final expenses and by replacing your income.   Either a variable life or universal life insurance policy will help you accomplish that.