Universal life insurance is a flexible permanent life insurance that offer low-cost protection of term-life insurance and savings element. The low-cost protection and the savings element are invested to provide a cash value. The policyholders can use the interest from their accumulated savings to pay premiums over time. The insurance company could change the customer's policy by reviewing the death benefit, savings component and premiums.

Compare to whole life insurance, universal life insurance have more flexibility even though both types are created under the umbrella of permanent life insurance. The policyholder pays premium which will be divided by the insurance company into the insurance cost and cash value as the customer's saving component. The component that must to be covered is the insurance cost so the policy can continue to run, however premiums might be switched from time to time depends on the policyholder's needs. If the policyholder pay their premium over the minimum amount of insurance cost, it will be accumulated into the cash value in their policy. The cash value can be used to pay premiums, if the policyholder want it. As long as the minimum insurance cost is covered, they can use the cash value and their policy is guaranteed.

The obvious thing that differentiates whole life insurance and universal life insurance is the way cash value accumulates. Within universal life insurance contract, the insurance company issuing the policy which created a minimum interest rate. The minimum interest rate can determine the portfolio of the insurance company. If the portfolio outperform the minimum interest rate, the surplus earnings might be applied to policy's cash value. This potential differentiates universal life insurance from whole life insurance.

The policyholders can access a portion of the cash value balance without affecting the death benefit as the cash value accumulated from time to time. In addition, the policyholders do not have to pay the tax if they take loans from life insurance policy. One thing to remember, if policyholders do not repay the loans from their policy loan to the extent they affect the balance, it may reduce the total death benefit for their beneficiaries. Lastly, the policyholders can be charged for tax if they withdraw the cash value.