As permanent life policies, both whole life and universal life policies provide lifetime coverage and a cash value savings account component built into the policy. These policies differ from term life insurance, which only offers temporary coverage for a predetermined number of years and has no cash value option.
When comparing life insurance policy types, universal life falls between term life and whole life. While it’s cheaper and provides more flexibility than whole life insurance, it has more complexity and is more expensive than term life insurance.
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What Is the Difference Between Universal and Whole Life Insurance?
The difference between whole life and universal life insurance is the rigidity of the policy. Once a whole life policy is issued, the coverage amount, premium and cash value interest rate stay the same for the policy's life. In contrast, the death benefit amount, premium and cash value interest rate of a universal life policy can change.
Universal vs. Whole Life Insurance
- Flexible premiums
- Flexible death benefit
- Cash value interest rate can fluctuate
- Does not offer dividends
- Lifetime coverage is not guaranteed
- Requires close monitoring to ensure policy doesn’t lapse
- Premiums don’t change
- Death benefit stays the same
- Lifetime policy coverage
- Guaranteed cash value interest rate
- Eligible for dividends
Once you decide to buy permanent life insurance, it’s time to choose between whole life vs universal life. Whole life insurance is a better fit if you want guaranteed benefits that are clearly laid out at the inception of the policy. Universal life is best if you want more affordable coverage with the flexibility to make changes if your financial situation or lifestyle changes.
Universal life insurance and whole life insurance features
Feature | Universal Life Insurance | Whole Life Insurance |
---|---|---|
Length of Coverage | The coverage length is flexible, meaning | As long as you pay premiums, |
Cash Value | Although universal life insurance may | Whole life insurance cash value has a |
Death Benefit | A death benefit is not guaranteed for | The death benefit is guaranteed to |
Premium Over Time | Since the death benefit and other | A whole life insurance policy has a |
Dividend Eligibility | Although a universal life policy comes | Depending on the specific policy |
Borrow or Withdraw | Once a minimum threshold has been | You can borrow or withdraw the |
Rider Eligibility | Universal life policies are eligible for | Whole life policies are eligible for |
Use for Estate | Although you can use universal life for | A whole life policy can help pay for |
Cost of Universal Life Insurance vs. Whole Life Insurance
When comparing the cost of whole life insurance vs universal life insurance, universal life is cheaper than whole life insurance, but more expensive than term life insurance. Although life insurance rates depend on coverage amount, policy type and features, and personal factors including age and health status, whole life costs about 20 times more than term life. An average whole life policy costs around $6,127 annually, whereas the average cost of a similar term policy is $317 per year.
Related: >> How Much Does Permanent Life Insurance Cost?
Whole Life Insurance
Whole life insurance can cost as much as 20 times more than term life insurance because it has more benefits, like permanent coverage that lasts a lifetime, dividends, riders and cash value.
Universal Life Insurance
Universal life insurance is generally cheaper than whole life insurance, since it has fewer guarantees and more flexibility. However, it’s more expensive than term life because it has some of the same extra features that whole life does, such as lifetime coverage, riders and cash value.
Although universal whole life insurance tends to be cheaper than whole life insurance, its flexibility can make it more expensive. For many, universal life is not the most suitable option, unless you have specific goals and are prepared to monitor the policy closely for fluctuations to avoid a lapse in coverage.
Should You Get Universal or Whole Life Insurance?
If you are trying to decide which is better, universal or whole life insurance, the answer comes down to personal life insurance needs and goals for the policy. Universal life may be a better fit if you have a lower income, since it offers cheaper premiums.
If your income is higher, you may prefer whole life insurance, which has more expensive premiums. It’s smart to work with a life insurance expert or financial professional to decide if you should get universal or whole life insurance. There are several reasons one may be better than the other for you.
Although whole and universal life are both options for permanent coverage, many find that term life is a better fit. Not only is it cheaper, but buying term life insurance and investing the premium difference may be a more economical choice for cash value growth. Different term life companies offer different options for coverage.
If you decide that permanent life coverage is your best fit, we can help you find the best whole life and best universal life insurance companies for this type of coverage.
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Frequently Asked Questions
You may still wonder which is better, whole life or universal life. MoneyGeek answers the most common questions about universal life vs whole life insurance.
About Mandy Sleight, Licensed Insurance Agent
