Quite simply, Variable Life and Universal Life are the exact same form of insurance. Each policy works the same in cost of insurance and how much the insurance may cost within the policy. The major difference is that the cash value in a variable policy is invested in a form of mutual fund rather than at a fixed interest rate.

Each policy holder could pick the mutual fund or investment to place their cash value in, and therefore, the degree of risk on their cash value. Since the policyholder is now investing their cash value in the market, they can now chose a more aggressive investment to maximize their returns, but they should know that they are accepting more risk should the stock market take a turn for the worse.

As we discussed in Universal Life, if your policy cash value drops to zero you will be required to pay a higher premium to maintain your death benefit and prevent the policy from “Lapsing.” Should your policy suffer a drop in cash value when you were planning to on taking a supplemental retirement income you could find yourself in a position of paying more into the policy to maintain it at a time when you were planning on taking cash out.