Universal Life Insurance is a variation of Whole Life. The insurance part of the policy is separated from the investment portion of the policy.The investment portion is invested by the insurance company in bonds, mortgages and money market funds. This investment portion grows and is tax-deferred.  The cost of the death benefit is paid for out of the investment fund.   A guaranteed minimum interest rate applied to the policy means that, no matter how badly the investments perform, the insurance company guarantees a certain minimum return on the cash portion. If the insurance company does well with its investments, the interest return on the cash portion will increase.

Pros:

Similar to Whole Life Insurance. More flexible premiums. Fund for younger buyers who may have fluctuations in their ability to pay.

Cons:

If the insurance company does poorly with its investments, the interest return on the cash portion of the policy will decrease. In this case, less money would be available to pay the cost of the death benefit portion of the policy.