The income tax on any growth of the cash value of a variable life insurance or universal life insurance policy is tax deferred. The growth within the policy is taxed at withdrawal. The death benefit of both a variable and universal life insurance policy is income tax free to the beneficiaries.
A variable life insurance policy does not offer a flexible premium payment option. The cash value is subject to market risk. The cash value is invested in funds of equities, money markets and bonds. The insured decides where to invest. The cash value fluctuates with the performance of the market (stocks, bonds, money markets)
A universal life insurance policy allows for flexible premium payments, as long as the insured meets certain policy minimums. These minimums will vary depending upon the insurance company.
Both variable and universal life insurance policies can be the foundation of your financial portfolio. Which type of policy fits your personal portfolio depends upon your financial needs. Sometimes, both policies are needed to complete a portfolio. Some of the features in the variable life policy are needed that are not in the universal policy and vice versa. In that situation, the investor splits his premium dollars between both policies.