Variable Life Insurance vs. Whole Life | Similarities and Differences

When looking for life insurance, you need to take a deep dive into learning about different insurance policies and their features.

First, we have to distinguish between term and permanent life insurance policies. As their names suggest, the former provides insurance for a limited period, while the latter covers you for life.

In the article below, we will discuss variable life insurance vs. whole life insurance: two common types of permanent life insurance, to see what makes them unique and to help you choose the policy that suits you.

Table of Contents

    Whole Life Insurance: An Overview

    Whole-life insurance is one of the most sought-after permanent life insurances, and it is also one of the most expensive ones. It provides the policyholders with a permanent life insurance policy if they cover all the premium payments.

    There are two major components to every whole life insurance policy:

    1. Cash Value
    2. Death Benefit

    As you pay premiums, a portion of that money goes towards your cash value, which is characterized by tax-deferred growth. The rest of the money is directed toward the death benefit – the amount beneficiaries receive in case the policyholder dies.

    The leveled premiums and the guaranteed death benefit are reasons many people choose this particular life insurance policy. One underestimated feature of whole-life policies is the cash value, and we will later see why.

    How Does Whole Life Insurance Work?

    What’s specific about it is that it is unique to the insured person. Insurance companies consider several factors when creating whole-life policies that provide lifelong coverage. These include:

    • Mortality risk
    • Desired coverage level
    • Riders and additions

    You must first apply for a policy and undergo a medical exam to determine your eligibility. After you get approved, you start paying premiums regularly and increase the policy’s death benefit and cash value.

    Later, you can withdraw the money from the cash value, take loans from the insurance company using your cash value as collateral, or surrender your policy if you can no longer pay premiums.

    As you can see, whole life is more than just life insurance – it is a financial vehicle that you can use to protect your family, improve personal finance or elevate your business while you get a death benefit simultaneously!

    Variable Life Insurance: An Overview

    Variable life insurance (VLI) is a type of permanent insurance with a guaranteed death benefit and the potential for cash value growth.

    Variable life insurance provides several benefits to policyholders. It combines the death benefit—a financial payout to your family members when you die—and it offers investment options — you can have sub-accounts that you will use for investments.

    With the investment options comes higher risk as your cash value can deflate if the market conditions are negative. On the other hand, fulfill your investment objectives and profit greatly from VLI.

    How Does Variable Life Insurance Work?

    The way you get a variable life insurance policy is the same as the way you get a whole life policy. All you have to do is apply, go through a medical exam, or answer the health questionnaire (different insurers provide different options), and you now have a policy.

    VLI policies are specific because of the investment factors, but they are not to be confused with variable universal life insurance!

    Variable Life Insurance (VLI) vs. Variable Universal Life Insurance (VUL)

    Although we are comparing variable life insurance coverage to whole life, we must be on the same page. Many people confuse variable life with variable universal life policies.

    Let’s make a quick distinction here.

    Both variable life insurance policies have similar features, but the death benefit and cash value are the main differences.

    Universal life insurance policies have a flexible death benefit, and although you can grow your cash value, it is slow. On the other hand, a variable life insurance policy has a guaranteed death benefit and faster cash value growth.

    Both variable universal life insurance and variable life insurance have an investment segment in them and function similarly. Still, you can explore more about variable universal life at our blog and find out more about market risk, death benefits, tax advantages, and more.

    Variable Life Insurance vs. Whole Life: Key Differences

    These two policies belong under the permanent life insurance umbrella, so they have the same aspects.

    We will compare them in pricing, premiums, death benefits, cash value, and dividends.


    What you must be most interested in when it comes to whole life and variable life insurance is the cost of a policy.

    Yet, this is hard to determine because there isn’t a fixed rate applied across the board. Each insurance company has its own underwriting process, where they estimate the worth of the insurance and the price you will pay for it.

    Several factors influence the cost of both whole life insurance and VLI:

    • Your Age
    • Your Gender
    • Your smoking status
    • Overall Health
    • Your Driving record
    • Occupation and lifestyle
    • Medical history

    For example, the average annual cost of whole life insurance for a 30-year-old man in 2023 is $4,625, while women pay $4,015 for the $500,000 coverage, according to Quotacy.

    This changes with age, and you can see the whole table below:

    Similar numbers can be expected with variable life insurance policies, but they are hard to predict due to changing premiums. For the $500,000 coverage, a healthy person in their 30s can pay between approximately $3,000 and $5,000 per year.


    With whole life insurance, the premiums are fairly simple to grasp. Although the price of a whole life insurance policy can be high, as long as you have your premiums paid, you have nothing to worry about.

    With level premium payments, you can create a financial plan and stick to it. However, there are modified whole life insurance policies that can lower your premium payment in the first 5–10 years, but they will increase afterward.

    A variable life insurance policy also comes with fixed premiums. The premiums you pay are placed in an account for investment purposes. Unlike whole life insurance, you have a say in allocating the premiums—in a series of investment vehicles or sub-accounts like mutual funds.

    As long as you pay the premiums, you keep the coverage of the variable life insurance policy.


    Again, you must be careful not to confuse VLI with universal life insurance. Universal life insurance comes with flexible premiums that can be adjusted. Lowering your premiums too much can lapse your universal life insurance policy.

    Death Benefit

    What makes whole-life insurance policies appealing is the fixed death benefit amount. The amount of money paid to your beneficiaries will not decrease regardless of what happens with the savings component of your policy.

    Not all permanent life insurance policies allow you to use the cash value while you are alive and simultaneously maintain a high death benefit.

    On the other hand, there are two death benefit options with a variable life policy:

    • Level death benefit – the death benefit equals the face value of the variable life on the day of the purchase.
    • Face value plus the remaining cash value (that can be added to the death benefit) – receive the face value of the policy with the remaining cash value. Consequently, the death benefit is higher, but this variable life is more expensive.

    If you take a loan against your policy and don’t pay it back, the variable death benefit may be reduced. Some life insurance companies offer different structures when it comes to death benefits, so read the terms carefully.

    Cash Value

    The policy’s cash value is used differently in whole and variable life insurance.

    The cash value of your whole life is similar to a retirement savings account. The policy allows you to accumulate cash that grows tax-deferred. Ideally, you want to leave the cash value to grow, but the money is yours to use.

    For example, you can withdraw money at any point and use it to finance a car purchase, pay off student debt, or cover other expenses. However, you can still leave the cash value to accumulate if you use it as collateral and take loans from the insurance company.

    The policy’s cash will continue to grow tax-deferred while you receive the fixed interest rate. The insurer will transfer the money from your cash value if you don’t pay off your loans.

    But there should be enough cash value to take any loans. (Overfunding your life insurance and adding the Paid-Up Additions riders accelerates the process significantly).

    What About Variable Insurance?

    With variable life, cash value functions uniquely and cannot be compared to whole life, a variable universal life policy, or even indexed universal life insurance. Although it also grows on a tax-deferred basis, the cash value is invested, and there are over 20 different investment options.

    These investments are similar to mutual funds in that money will be invested in a particular set of securities, including bonds, a money market fund, an index, and a portfolio of equities. Remember that you will be charged management fees no matter which option you select. The management fees resemble expense ratios from mutual funds.

    Despite the investment risks, variable life insurance has the highest potential of all the policies with an investment component. The biggest downside is that cash value growth isn’t guaranteed, especially considering today’s instability. In other words, you can still lose most of your money even with timely premium payments.


    Although variable life is not term life insurance, it isn’t eligible for dividends even when the company participates in dividend reimbursement.

    On the other hand, whole-life beneficiaries receive dividends annually. For example, a policy worth $50,000 that offers a 3% dividend will pay $1,500 for that year, but this number can increase the more you contribute to the policy’s cash value. You don’t have to pay taxes on dividends.

    There are several ways in which you can use the dividends:

    1. Request an insurance firm to send you a check or cash
    2. Direct dividends toward premium payments
    3. Buy additional insurance
    4. Place them in your policy’s cash value or another savings or cash account.

    Whole life Insurance vs. Variable Life Insurance: Takeaway

    The two insurance options we analyzed today widely differ: whole life offers steady growth with guaranteed death benefits, while variable life is for risk-takers who want to explore different investment options and try to earn more money.

    Overall, whole life insurance is a better option because it provides you stability and a secure death benefit, and you run no risk of losing your money. There are ways to make the most out of your policy, even though it offers no investment options directly.