Types of cash value life insurance

Whole life

Whole life insurance is also called “ordinary life” or “straight life.” It provides coverage for your entire life.
The premium depends on your age when you buy it and stays the same as you grow older. You'll get a lower premium if you buy it when you're young, because you'll pay into it longer.
The cash value of your insurance grows based on the interest rate your insurer sets each year.
It sometimes lets you pay premiums for a shorter time, such as 15 years or until you reach age 65.
Premiums for it are higher because you pay them over a short time.

Universal life insurance is also called "flexible premium adjustable life insurance." It lets you save money that grows tax-free.
Your insurer invests some of your premiums. You won't pay taxes on money you earn from the investment.
It offers a guaranteed minimum interest rate. This means you'll always earn a certain amount from your investment.
If your insurer invests well, the money you earn in interest increases.
It often offers a no-lapse guarantee. This means you'll keep your insurance as long as you pay the minimum premium required to cover the cost of insurance. However, you won't get much money if you only pay the minimum premium.

There are a couple of situations to be aware of in which the cash value of your life insurance policy may come with a tax bill:

If you take out a policy loan from your life insurance plan, the loan won't be taxable. The exception to this is if the policy terminates before you’ve repaid the loan. In this case, you might get hit with a tax bill.
You can withdraw up to the amount of the total premiums you’ve paid into the policy without paying taxes. But if you withdraw on any gains, such as dividends, you can expect them to be taxed as ordinary income

Variable life insurance is permanent coverage that uses investments.
The death benefit and cash values vary.
Your insurer invests your money into separate investment accounts, such as portfolios of stocks, bonds, and other investments. These accounts are like mutual funds.
Your insurer should give you a document describing each account. This is also called a prospectus.
You choose which accounts to invest your money in.
The value of the accounts changes the cash values and death benefit.
You take the risk of investing.