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Universal Life Insurance vs Whole Life Insurance

What is universal life insurance?  Universal life insurance is a flexible, affordable life insurance policy that offers an affordable type of coverage for duration of the life insurance policy. There is also an opportunity to use the policy for savings through a cash value appreciation. The benefit, premium and saving options can be changed as circumstances change in the life of the policy holder.  Also, universal life insurance allows the policyholder to capitalize on the interest earned to help pay the premiums.  This is one significant difference between universal and whole life insurance.

The reason universal life insurance was created was to provide a greater amount of flexibility than what’s found in a whole life insurance policy.  The main way this is happens is by allowing the policy holder the opportunity to move money from the insurance and savings elements of the policy.  Also, the premiums are variable and are divided into part savings, part insurance by the insurance companies.  This allows for changes to be made based on the various circumstances the policy holder may themselves in.  For instance, if the savings portion is not earning a high return, it can used to pay the premium instead outside funds from the holder. Universal life insurance allows the value of the policy to grow at a variable rate, unlike whole life insurance.

Term policies are popular, especially because many of them offer what’s called no exam life insurance. Because they are temporary and expire with no cash value, term gives people a chance to buy cheap life insurance. But many people prefer to have permanent life insurance that will cover them for a lifetime and build a cash value. For permanent coverage, the choice comes down to universal life insurance vs whole life insurance. Take a moment to understand the difference between these two types of permanent protection.

Agents are not supposed to call life insurance an investment, but is is fair to say that both of these types of permanent coverage combine life insurance with a savings feature. In other words, as premiums get paid over time, they can accumulate a cash value as well as pay for coverage. Likewise, both types of policies stay in force as long as adequate premiums get paid.

These are some characteristics of typical whole life insurance policies:

Universal life is different because the cash account is more separated from the funds needed to keep life insurance in force. Additionally, premiums and death benefits are flexible to a degree. For example, universal life insurance policy owners have a minimum, target, and maximum premium that they can choose to pay. The size of the cash account and death benefit will depend upon the amount of premiums paid over time. Like whole life, universal life may have a set return rate or provide returns that are pegged to a market index like the S&P 500.

Is Whole or Universal Life Insurance Better?

When you compare whole or universal life, you will find that whole life is simpler and more suited for people who simply want lifetime coverage, a predictable premium, a predictable death benefit, and the ability to grow an asset that could get used while they are still alive by cashing out their policy, borrowing against the cash account, or selling the policy in a senior life settlement.

Universal life can do what whole life does. But it also gives policy owners a chance to adjust their death benefit, premium, and cash accounts based upon different circumstances. It is both more complicated and more flexible.

Universal Life Insurance vs Whole Life Insurance: Which is Best for You?

The right choice really depends upon what you want your life insurance to do for you. If you want to buy a simple policy with predictable costs and benefits, consider whole life. If you believe that your needs may change over your lifetime and want more control over your life insurance, universal life might be a better choice.