How does universal life insurance differ from whole life insurance?

Universal life insurance differs from whole life insurance primarily in its premium structure and flexible design. While whole life insurance features fixed premiums that do not change over the lifetime of the policy, universal life insurance allows policyholders to alter the amount and timing of their premium payments within certain limits. This flexibility can be advantageous for individuals whose financial situations may change over time, as they can adjust their contributions according to their current circumstances.

Moreover, both types of insurance policies build cash value; however, with universal life insurance, the cash value grows based on a credited interest rate set by the insurer. This added flexibility in premiums and cash value growth options is a distinguishing characteristic of universal life that sets it apart from the rigidity of whole life insurance.