What distinguishes universal life insurance from whole life insurance?

Universal life insurance is characterized by its flexibility in premium payments and the way it combines life insurance coverage with an investment component. One of the main distinguishing features of universal life insurance is that it allows policyholders to adjust their premiums and death benefits within certain limits. This flexibility means that as long as the policy's cash value is sufficient to cover the cost of insurance and any associated fees, the policyholder can increase or decrease their premium payments, which is not typically the case with whole life insurance that has fixed premiums and benefits.

The investment aspect of universal life insurance allows policyholders to allocate a portion of their premium payments towards a cash value that can grow over time, potentially at rates that can exceed those of whole life policies. This combination of a permanent life insurance element with the potential for investment growth distinguishes universal life from whole life insurance, which tends to have more rigid structure and guaranteed components.

In contrast to universal life, whole life insurance provides a set premium and a guaranteed death benefit, emphasizing security and predictability over flexibility. Also, whole life policies generally do not offer the same level of control over investments as universal life insurance does.