Once a cash-value policy is purchased, it never needs to be renewed, nor must insurability be proven again. Universal life insurance was introduced in 1979 to satisfy consumer demands for payment of higher rates of interest on the savings portion of the policy than were previously available from traditional cash-value policies. The insurance companies share more of their investment yield with their policy holders than they do with traditional cash-value policies. In addition to a potentially better return, universal life also offers greater flexibility. Many companies allow the policy holder to vary the premium and the amount of the death benefits as family financial needs change.
Universal life is actually a combination of term insurance and a tax-deferred savings plan.
The savings part generally grows at a faster, higher rate than with whole life. The overall cost is less than whole life but more than term insurance. Variable life insurance is similar to universal, except that the policy holder controls the investments of the premiums in funds of varying risk. While the face amount of the policy is guaranteed as long as premiums are paid, the cash value of the policy may increase or decrease depending on the rates of return on the invested funds. Premiums may be fixed or flexible.