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Comparing universal vs. variable universal life insurance: Is one right for you?

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Universal life insurance and variable universal life insurance are two kinds of permanent life insurance that can offer financial security for your loved ones after you're gone. As long as you pay the premiums, your coverage can last the rest of your life. Plus, you can accumulate cash value that you can access during your lifetime.

You have flexible premiums with these two types of universal insurance, letting you fund your life insurance more or less generously as your life circumstances shift. But as you weigh universal vs. variable universal life insurance, you'll notice a key difference around how your cash value accumulates—which can lead to certain advantages and disadvantages.

Let's dive deeper into the similarities and differences between universal and variable universal life insurance.

We'll cover:

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How universal life insurance works

With universal life insurance, you build accumulated value, or cash value, by making premium payments and earning interest at a rate that can change but has a guaranteed minimum. A key feature of universal life is that you can adjust the size or frequency of your premiums—either to build cash value more quickly or slow down if your budget demands it.

Deductions are taken each month from your cash value to pay the costs associated with your contract, but as long as you have a sufficient balance, your universal life insurance will pay out a death benefit. You can also tap into your cash value while you're alive, although any amounts not repaid will lower the death benefit.1

How variable universal life insurance works

Variable universal life insurance operates just like regular universal life except that instead of earning a minimum interest rate on your cash value, you invest it in market subaccounts, such as mutual or index funds. If the market performs well, your cash value may grow; if the market does poorly, your life insurance may lose value. You control the investment allocation by selecting from the subaccounts offered by your insurance provider.

4 ways universal & variable universal life are similar

Universal and variable universal life insurance share some key features that attract people to their coverage.

1. A death benefit that can last permanently

Both products offer the potential for permanent protection when you adequately fund your contract, which means that you may need to adjust your premiums to cover interest rate fluctuations or increased charges. They require you to pay enough in premiums so that required costs, as well as any optional cash value loans or surrenders, do not use up your death benefit.

2. Cash value accumulation

Universal and variable universal life insurance both accumulate cash value. Some of your premium goes toward this part of your contract, so the more you pay in, the more potential your cash value may have to grow. You can withdraw or borrow against your cash value balance if needed—such as for major expenses like college costs or additional retirement income. However, if you don't pay that borrowed amount back, your beneficiary's death payout will decrease, and your coverage could be terminated.

3. Adjustable premium amounts

Premium flexibility is one of the biggest reasons some people choose to get universal and variable universal life insurance. Term life insurance and whole life insurance have fixed premiums that are due by specific dates. Universal and variable universal life insurance let you shift between higher and lower premiums as your budget and death benefit requirements change.

4. Tax advantages

The cash value you accumulate through universal or variable universal life insurance can grow tax-deferred within your contract. Taking out personal loans or making partial surrenders also may not be taxable, provided your life insurance doesn't qualify as a modified endowment contract. In addition, both can provide a tax-free payment to your beneficiaries when you die.2,3,4

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4 ways that variable universal differs from universal life insurance

You'll find some distinctions variable universal and universal life insurance including investment options, risk, fees and complexity.

1. Variable universal lets you choose your investments

With universal life insurance, your cash value grows based on current interest rates, and some companies guarantee a minimum rate of return. You don't choose what to invest in, so this arrangement provides you with dependability but less control.

Variable universal life insurance involves investment subaccounts, and you decide how to invest your money within them. You'll have access to a variety of equity and fixed-income portfolios with different focuses, such as global stocks, government bonds or large company U.S. stocks. You have the control to potentially gain higher rates of return, but you also take on the possibility of losing money.

2. Variable universal poses a risk of losing principal

With universal life, your cash value won't decrease due to fluctuations in the market, but it may be reduced by monthly deductions needed to cover the cost of the insurance. Additionally, withdrawals and surrenders can lower your cash value and death benefit.

Variable universal life exposes you to the risk of market downturns when you select variable investments within your contract's subaccounts. If you sell investments at a loss, your cash value can decline. This could cause you to lose your principal. Significant investment losses could cause you to lose your cash value and decrease your death benefit.

3. Variable universal may have more fees as a tradeoff for market potential

Both universal and variable universal life have fees that pay for the coverage as well as the insurer's cost of doing business. But a variable universal life contract may have more charges for three main reasons:

  • It provides an investment option. The more features within an insurance contract, the higher the premiums.
  • The investments themselves come with expenses, just like investments outside of a life insurance contract.
  • It needs a larger cash value cushion to help it withstand market downturns without lapsing.

It's important to realize, however, that this doesn't mean variable universal will necessarily "cost" more overall than universal life. As the adage goes, more risk can mean more rewards—and market access gives variable universal life the potential for greater earnings.

4. Variable universal tends to be more complicated

Variable universal life insurance is more complex than universal because of the investment component. You're in charge of how to invest your contract's cash value through investment subaccounts. While your financial advisor can help guide these investment decisions, they're ultimately up to you.

At a glance: Universal vs. variable universal life insurance

Universal life
Variable universal life
Death benefit
Yes, if contract retains sufficient cash value; may adjust while contract is active
Yes, if contract retains sufficient cash value; may adjust while contract is active
Permanent protection
Yes, if account remains in good standing with sufficient cash value
Yes, if account remains in good standing with sufficient cash value
Can be flexible in amount and frequency
Can be flexible in amount and frequency
Cash value accumulation
Tax-deferred growth
Investment options
Yes, variable/fixed subaccounts
Growth potential
Cash value earns a minimum guaranteed interest rate, limiting growth potential
High growth potential but not guaranteed—market fluctuations may increase or decrease cash value
Risk of investment loss
Possible loss of death benefit due to investment loss

Is universal or universal variable life insurance better?

Universal life insurance may be a better choice if you want someone else to decide how to invest your money. This type of contract provides a stated credited rate of return that changes over time but has a guaranteed minimum.

Variable universal life insurance might be a better fit if you're looking for greater growth potential for your cash value. You'll gain this by choosing subaccounts where you'll invest part of your premium. However, you'll also take on the risk of loss.

If neither seems ideal, consider the features of other life insurance options. If you'd rather see consistent premiums, guaranteed growth and the potential for dividends, whole life insurance may be a better choice. And if you don't need lifetime coverage or cash value, you may want to consider term life insurance.

Finding the life insurance that's right for you

All types of life insurance offer a death benefit that can support your family's well-being. When you want a contract that accumulates cash value and lets you change the amount and timing of your premium payments, universal or variable universal life can meet that need.

However, these two types of life insurance—particularly variable universal—are more complex than term or whole life insurance. It's extra important to understand exactly how they each work before you make a purchase.

When you talk with a financial advisor, you'll get professional help understanding the benefits and drawbacks of each as they pertain to your situation. Reach out to a local Thrivent financial advisor to discuss which type of life insurance may be right for achieving your specific goals.

1 Loans and surrenders will decrease the death proceeds and the value available to pay insurance costs which may cause the contract to terminate without value. Surrenders may generate an income tax liability and charges may apply. A significant taxable event can occur if a contract terminates with outstanding debt. Contact your tax advisor for further details. Loaned values may accumulate at a lower rate than unloaned values.

2 With partial surrenders, you generally will not have a taxable event until the accumulated value received exceeds the total amount of premiums paid.

3 Life insurance proceeds may be subject to federal and state estate and inheritance taxes. Under current tax law, death proceeds received by beneficiaries are income tax-free. However, death proceeds may be subject to estate and inheritance tax.

4 Modified Endowment Contracts (MECs) do not qualify for tax-free withdrawals.

Investing involves risk, including the possible loss of principal. The prospectus and summary prospectuses of the variable universal life contract and underlying investment options contain information on investment objectives, risks, charges and expenses, which investors should read carefully and consider before investing. Available at

Thrivent and its financial professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

Guarantees based on the financial strength and claims paying ability of Thrivent.

This contract has exclusions, limitations and terms under which the benefits may be reduced, or the contract may be discontinued. For costs and complete details of coverage, contact your licensed insurance agent/producer.

If requested, a licensed insurance agent/producer may contact you and financial solutions, including insurance may be solicited.