Life can be predictably unpredictable. We dream, we plan—and we hope for the best, because we never know what tomorrow will bring. Creating a financial safety net around your carefully laid plans in the event of your untimely death can help your family live on as you planned.
Universal life insurance: The flexible option
Life any form of life insurance,
The most unique feature that universal life insurance offers is flexibility in both the death benefit and premium payments.
Whole life insurance: The consistent option
Similar to universal life insurance,
The uniqueness of whole life insurance lies in its consistency and predictability. It provides a guaranteed death benefit (as long as premiums are paid), a guaranteed fixed premium that never changes and guaranteed cash value growth. It also has the potential to receive
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Comparing universal life vs. whole life insurance
Let’s compare the features of these policies side by side. We’ll discuss the differences between these features:
Premiums Potential for permanent protection Cash value Death benefit Dividends Loans & withdrawals Surrender charges Comparison chart at-a-glance
A premium is what you pay for coverage. With cash value policies, part of your premium goes toward your death benefit. Another portion goes toward building cash value in a savings account, which may grow on a tax-deferred basis.
- Universal life: You have the flexibility to adjust the amount and timing of premium payments to fit your needs. This nimbleness allows you to build up cash value quicker or slow your contributions as your income fluctuates. (Although, if you stop or reduce your premiums and an amount called the "cash surrender value" is depleted, your contract might lapse and your coverage may end.)
- Whole life: The premiums are guaranteed not to change, though you do have the option of paying them over your lifetime or within a limited time. Choosing the latter strategy means you could fully pay off your premiums before you retire.
How long will the life insurance cover last?
True to its name, permanent life insurance can last your entire life as opposed to a term life insurance policy in which the term would end at a specific point in time.
- Universal life: The contract stays in force as long as it has cash value. However, coverage isn't guaranteed to last throughout your life. To ensure coverage remains in place, you may need to adjust your premiums due to interest rate fluctuations or increased insurance charges.
- Whole life: Coverage is guaranteed and remains in effect unless you cash the policy in or stop paying premiums.
- Universal life: The cash value account of universal life typically earns a fixed market rate of interest and changes over time. It generally also has a minimum guaranteed interest rate that the contract will not go below.
- Whole life: Whole Life offers a guaranteed level death benefit with premiums that never change. In addition, the cash value in the contract is guaranteed to equal the death benefit upon maturity of the contract (age 121). While not guaranteed, dividends may be distributed over time and increase the cash surrender value.
The death benefit of life insurance is generally
- Universal life: You have the option to increase or decrease the death benefit while the contract is active, but will generally require underwriting. Notably, the death benefit is not guaranteed with universal life. If you stop or reduce premiums and deplete the cash value, your contract could lapse or end.
- Whole life: Guarantees the death benefit, which will never decrease as long as premiums are paid. Dividends may be used to purchase paid up additions, which can increase your death benefit over time.
- Universal life: Though universal life contracts may be eligible for dividends, they're generally not expected to be paid.
- Whole life: These policies often pay dividends, but dividends are not guaranteed.
Loans or withdrawals
You can potentially
It's critical to remember that loans and withdrawals will decrease your death benefit and the cash value available to pay insurance costs. They may cause a contract to lapse or terminate without value.
- Both universal life and whole life polices allow for loans and withdrawals.
Another way to access the cash value that builds up is through surrendering, or cashing out, your policy. Surrender charges are the fees that an insurer takes out of your cash value if you cancel your policy early.
- Both universal and whole life insurance contracts may have these charges.
Universal life insurance vs. whole life insurance
Flexible, though sufficient cash value must be available to cover monthly premiums costs.
|Fixed, will not change.|
|How long coverage lasts||Lifetime, if cash value remains sufficient to cover monthly deductions.||Lifetime, if premiums are paid.|
|Death benefit||Flexible||Fixed but can grow with paid up additions (dividends)|
|Loans or withdrawals available||Yes||Yes|
|Dividends||Eligible, but dividends are not expected to be paid.||Often pays dividends, but dividends are not guaranteed.|
|Surrender charges||Yes||Not typically|
|Cost||Generally less expensive than whole life.||Generally more expensive than universal life.|
Why is universal life cheaper than whole life?
Whole life generally has higher premiums than universal life because whole life offers a guaranteed death benefit, the same predictable premiums and a fixed interest rate. Essentially, policyholders pay more to take on less risk.
When you might choose universal life over whole life
- Want a generally more affordable permanent protection option.
- Want the option to vary the timing and amount of your premiums.
- Would like the ability to adjust the size of your death benefit.
- Are comfortable with the risk that coverage that isn't guaranteed to last throughout your life if you aren’t able to pay premiums or deplete cash value.
- Plan on regularly monitoring your policy to ensure it remains in good standing and retains sufficient cash value to cover monthly insurance costs.
When you might choose whole life over universal life
- Seek coverage that is guaranteed to last throughout your life.
- Want the predictability of premium payments that will never change.
- Are looking for cash value growth that isn't subject to market risk.
- Want the potential to receive dividends.
- Want a policy you don't have to keep a close eye on.
- Are comfortable purchasing coverage that likely costs more than universal life.
Get guidance on the type of life insurance right for you
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