Whole Life Vs. Universal Life Insurance- When it comes to life insurance, there is a wide variety of options to choose from and this can be overwhelming for a lot of people who are interested in getting a quote. Among the most popular types of life insurance are whole life and universal life insurance. Furthermore, these insurance types provide long-term coverage but they are different when it comes to certain factors. For example, investment opportunities, cost, and flexibility. Whole life vs. universal life insurance: what’s the difference?
It is very important to understand the differences between these insurance types, especially if you need a policy and I am sure you wouldn’t want to purchase an insurance policy that does not offer you the proper coverage amount you need. Apart from this, it also gives you and your beneficiaries security and peace of mind. In today’s content, we will be learning about what whole and universal life insurance are, what they cover, and who they are best for.
What is Whole Life Insurance?
Whole life insurance is a type of permanent life insurance that offers coverage and protection throughout the lifetime of the policyholder. However, the premium needs to be paid on time and consistently. Apart from this, whole life insurance comes with a savings component which is also known as the cash value and this grows over time.
What Does Whole Life Insurance Cover?
Whole life insurance typically offers coverage for the following:
- Lifetime coverage.
- Death benefit.
- Cash value accumulation.
What Does It Not Cover?
Here are the exclusions that a whole life insurance policy typically has or comes with:
- Suicide within the first two years of the quote.
- Anything beyond the death benefit (no additional cash value).
Who Needs a Policy?
Whole life insurance is beneficial for people who fall under this category:
- Families who need complete protection for dependents.
- Individuals looking for predictable, fixed premiums.
- People who are interested in accumulating cash value.
- Individuals seeking financial stability.
- People focused on leaving an inheritance or estate planning.
What is Universal Life Insurance?
Universal life insurance is a type of flexible permanent life insurance that provides the low-cost protection of term life insurance with a savings component. This saving component is added to get a cash value buildup. One of the features that distinguishes universal life insurance from whole life is the flexibility that it provides when it comes to death benefits and premium payments.
What Does Universal Life Insurance Cover?
Universal life insurance typically offers coverage for the following:
- Lifetime coverage.
- Death benefit.
- Cash value accumulation.
What Does It Not Cover?
Here are the exclusions that a universal life insurance policy typically has or comes with:
- Guaranteed cash value growth.
- Suicide within the first two years of the policy.
Who Needs a Policy?
You can consider getting a universal life insurance policy if you fall into any of these categories:
- People who seek flexible premium options.
- Investors looking for higher returns.
- People with fluctuating financial situations.
- Policyholders who want to adjust death benefits.
- People who need their insurance policy based on their constantly changing financial needs.
Whole Life Vs. Universal Life Insurance: What’s the Difference?
Now that you know what whole life and universal life insurance are, what they cover, and what they don’t, it is now time to discover their differences. Here is a table illustrating the major differences between these two insurance types:
| Features | Whole Life Insurance | Universal Life Insurance |
| Coverage Type | Permanent | Permanent |
| Cash Value | Yes | Yes |
| Premiums | Fixed | Flexible |
| Death Benefit | Guaranteed | Adjustable |
| Ideal For | People who need predictable costs and stability | People who need the potential for higher returns and flexibility |
| Investment Risk | Lower | Higher |
| Dividend Earning Option | Available | None |
| Underfunding | Impossible | Possible |
| Cost | More expensive | Less expensive |
| Coverage Length | Lifetime | Lifetime |
| Withdrawals or Loan Available? | Yes | Yes |
With help from this table, you have no problem finding or spotting the differences between whole life and universal insurance. In addition, you can confidently decide which insurance type you need, and will favor you.
Frequently Asked Questions
What happens to cash value after I die?
When the policyholder dies, the cash value of a life insurance policy is usually absorbed back into the insurance company. The beneficiaries receive only the death benefit amount specified in the policy, not the death benefit plus the accumulated cash value.
Why does whole life cost much more than universal life insurance?
Whole life insurance usually costs more than universal life insurance because of its guaranteed nature. Whole life insurance offers a fixed premium, a guaranteed death benefit, and a guaranteed rate of cash value growth. These guarantees provide financial security and predictability but come at a higher cost. Universal life insurance, on the other hand, provides more flexibility and potential for higher cash value growth tied to market rates, which can result in lower initial costs but with less predictability.
Can you convert a term life policy into whole life?
Whether you can convert term life insurance to whole life depends on the insurance provider and the condition of the term quote. If you can, you can convert to permanent coverage without undergoing a new medical exam.