What is the key difference between fixed and variable universal life insurance?

The key difference between fixed and variable universal life insurance lies in the structure of their cash value accumulation. Fixed universal life insurance contracts typically provide a guaranteed interest rate on the cash value, offering predictability and security for policyholders. In contrast, variable universal life insurance allows the policyholder to allocate the cash value into various investment options, such as stocks and bonds, which can lead to higher returns the potential for higher risk depending on the market performance.

This distinction is crucial for individuals assessing their insurance needs and investment strategies. Fixed policies appeal to those who prefer stability and a guaranteed return on their investments, while variable policies cater to those willing to accept more risk for the chance at greater long-term gains. The other choices highlight aspects of premiums, beneficiary designations, and payment structures that do not directly address the fundamental nature of how the cash value is treated in these products.