Whole Life vs Universal Life
Generally, whole life is simpler and more predictable, and universal life allows for more flexibility throughout the duration of your policy Whole life insurance and universal life insurance are both types of permanent life insurance, which means they offer lifelong coverage. However, there are some key differences between the two types of policies.
Whole life insurance
- Fixed premiums: The premiums for whole life insurance are fixed throughout the life of the policy.
- Guaranteed death benefit: The death benefit of a whole life insurance policy is guaranteed, even if the policyholder dies prematurely.
- No cash value accumulation: Whole life insurance does not accumulate cash value.
Universal life insurance
- Adjustable premiums: The premiums for universal life insurance can be adjusted over time.
- Guaranteed death benefit: The death benefit of a universal life insurance policy is guaranteed, but the amount may vary depending on the type of policy.
- Cash value accumulation: Universal life insurance can accumulate cash value, which can be used to pay for premiums, make withdrawals, or borrow against.
Key Differences between whole and universal life is the guarantees: Whole life has a guaranteed death benefit, level premiums, and growing cash value. This growth in cash value comes from annual dividends that are credited to policies. Universal life provides flexibility in lieu of guarantees. You can pay more or less each year for your policy (within limits), and this also will allow the cash value and death benefit to fluctuate. Rather than dividend payments, UL policies are credited based on interest rates. This can lead to a UL policy becoming underfunded, causing premiums to rise. If you can’t meet those payments, then the policy can terminate.
Which type of policy is right for you?
The best type of permanent life insurance for you will depend on your individual needs and circumstances. If you are looking for a policy with fixed premiums and a guaranteed death benefit, whole life insurance may be a good option for you. If you are looking for a policy with more flexibility and the potential to build cash value, universal life insurance may be a better choice.
Here are some additional factors to consider when choosing between whole life insurance and universal life insurance:
- Your age and health: The older you are and the less healthy you are, the higher your premiums will be for both types of policies.
- Your financial goals: Do you want to use the cash value of your policy to pay for retirement or other expenses?
- Your investment goals: Do you want to invest the cash value of your policy in stocks, bonds, or other investments?
- Your budget: How much can you afford to spend on premiums?
By considering these factors, you can choose the type of permanent life insurance that meets your needs and budget.