Universal life is a variation of whole life insurance characterized by considerable flexibility. This variation of permanent insurance allows you, after your initial payment, to pay premiums at any time, in virtually any amount, subject to certain minimums and maximums. You also can reduce or increase the amount of the death benefit more easily than under a traditional whole life policy.

In comparison to whole life, universal life offers you a guaranteed interest rate similar to that of a whole life policy, but if the insurance company earns a higher interest on the money invested, it will credit you with the higher rate. For example, if the insurance company earns 10%, you will get 10%, but if it earns 2% or even loses money, you are still guaranteed to get the policy minimum, usually around 4% to 5%.