Difference Between Universal Life and Whole Life Insurance

Universal Life vs Whole Life Insurance
 

Universal life insurance and whole life insurance are permanent life insurance policies. These policies are similar in the fact that they are taken out for the same purpose; to provide financial security and benefits at death. There are, however, a number of differences between the two. Universal life insurance policies are more flexible than whole life insurance policies that require a fixed premium payment to be made. The article offers a clear overview of each type of life insurance and explains the similarities and differences between universal life and whole life insurance.

Universal Life Insurance

Universal life insurance is an insurance policy. It is also known as an adjustable life insurance policy due to its greater flexibility. The policy holder has the option to reduce or increase their death benefit and to pay premiums with flexibility (any time, and any amount) after the first premium payment. The option to increase or decrease the death benefit will be subject to passing a medical exam. The policy holder has the option of claiming a fixed death benefit or a death benefit that increases with each payment. Part of the premium paid will be invested, and the interest will be deposited to the policy holder’s account. The interest on this will grow on a tax deferred basis and will thereby increase the cash value of the policy. In the event that the policy holder faces a financial difficulty they can use the cash value to pay their premiums, provided that the cash value is sufficient for the premium amount. The policy holder can also withdraw funds from the cash value fund when needed. Disadvantage of universal life insurance is that, in case the policy does not perform well, the estimated returns will not be earned and the policy holder will end up paying larger premiums to keep the value of the cash account at its current level.

Whole Life

Whole life insurance policy covers the policy holder for the length of their life. A fixed premium will have to be paid to receive the death benefit. A whole life insurance policy also includes a savings feature which means that the policy holder may pay higher premiums at the beginning of the term. In such an insurance policy, the insurance company will deposit part of the insurance funds in a bank account that offers a high interest rate and premium payments will increase the cash value. This will build up the policy’s cash value on a tax deferred basis. The policy holder can borrow against this cash value or surrender the policy and obtain the cash. However, the policy holder can also take part in the surplus of the insurance company and opt to receive dividends payments. The dividends can also be used to reduce the premiums that are to be paid.

What is the difference between Universal Life and Whole Life?

Permanent life insurance policies can be divided into two; i.e. whole life insurance and universal life insurance. Both, the whole life insurance and universal life insurance policies serve the need of providing a sizeable amount to the policy holder’s dependents or to pay up an amount that can be used for funeral or other expenses. The type of policy chosen will depend on the specific requirements of the policy holder. A whole life insurance will provide a secure death benefit and will accumulate value over time. A universal life insurance, on the other hand, will allow more flexibility to the policy holders; they can pay premiums depending on their financial situation.

Summary:

Universal Life vs. Whole Life

• Universal life insurance and whole life insurance are permanent life insurance policies. These policies are similar in the sense that they are taken out for the same purpose; to provide financial security and benefits at death.

• Universal life insurance is an insurance policy; it is also known as an adjustable life insurance policy due to its greater flexibility. The policy holders can pay premiums depending on their financial situation.

• Whole life insurance policy covers the policy holder for the length of their life and will provide a secure death benefit, also will accumulate value over time. A fixed premium will have to be paid to receive the death benefit.