Whole life and universal life policies are part insurance and part investment.  Part of the policyholder’s premiums pay for expenses and the insurance part of the policy.  The remainder goes into a tax-deferred cash reserve that is invested and builds the policy’s cash value.

• Whole life:  The policyholder pays fixed premiums and has no control over investments, which are left to the insuring company.
• Universal life:  The policyholder can vary premiums by paying them with some of the accumulated cash value of the policy, and the policyholder normally receives a minimum guaranteed rate of return at money market rates.  As with whole life, the universal life insurance policyholder generally does not have control over the investments.  However, if the policy does permit the selection of specific investments, report the policy as a variable life insurance policy.