Universal Insurance is the most flexible of all the various kinds of policies because it treats the elements of the policy separately. Universal life allows you to change or skip premium payments or change the death benefit more easily than any other policy. It works by treating the three elements of the policy, premium, death benefit and cash value separately.

Cash values are accumulated by crediting premium payments and interest to a fund from which deductions are made for the expenses and cost of insurance. Interest rates are linked to an external index such as Treasury bills. Because the cash value element of this type of policy is interest rate sensitive, predictions of future Life costs are highly dependent upon the accuracy of interest rate projections. This policy can also be structured to operate like term insurance.

Whole Insurance is designed to provide coverage for your entire life unlike term insurance which provides protection for a specified time period. To keep the premium level, the premium at the younger ages exceed the actual cost of protection. This extra premium builds a cash value which helps pay for the policy in later years as the cost of the insurance rises above the premium.

Whole life policies stretch the cost of insurance over a longer period of time in order to level out the increasing cost of insurance. Under some policies, premiums are required to be paid for a set number of years. Under other policies, premiums are paid throughout the policyholder’s lifetime.

Variable Insurance has a death benefit that varies in relation to the investment experience of the assets underlying the policy. A higher rate of return on the invested fund can cause the death benefits to increase, while a low or negative rate will cause the death benefits to decrease. Variable Universal Life Insurance combines the flexibility of universal life insurance with the investment account features of variable life insurance.