Universal Life Insurance vs. Whole Life Insurance: What’s the Difference & Which One Should You Get?

Both universal and whole life insurance are permanent life insurance policies. The key difference between whole life and universal life is that universal life provides more control over the policy and flexibility to make changes as life situations occur.

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Last Updated: 10/31/2022
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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

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Universal 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
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Whole Life Insurance
  • 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
    you can increase or decrease coverage as
    needed throughout the life of the
    policy. These changes can increase or
    decrease the length of policy coverage.

    As long as you pay premiums,
    whole life insurance coverage will last
    your lifetime.

  • Cash Value

    Although universal life insurance may
    have a guaranteed minimum interest
    rate, its earnings can fluctuate,
    depending on the policy. If the
    portfolio earns more interest, the
    policy will be credited the difference,
    allowing the cash value to grow faster
    than a similar whole life policy.
    However, in a down market, the insurer
    may use cash value to make up the
    difference.

    Whole life insurance cash value has a
    guaranteed interest rate for the life of
    the policy. This rate will determine
    how fast the cash value grows
    while the policy is in effect.

  • Death Benefit

    A death benefit is not guaranteed for
    the policy's life. You must make enough
    premium payments to keep the policy from
    lapsing, even if a no-lapse guarantee
    rider is included. Since you can adjust
    the death benefit, the amount that was
    initially taken out may differ from the
    death benefit amount the beneficiary
    receives.

    The death benefit is guaranteed to
    stay the same for the life of the
    policy, as long as premiums are paid.
    If the policy begins with a $100,000
    death benefit, the beneficiary will
    receive a $100,000 death benefit
    when the insured dies.

  • Premium Over Time

    Since the death benefit and other
    features can change during the policy
    duration, a universal life insurance
    premium can increase or decrease to
    match the changes made to the policy.

    A whole life insurance policy has a
    fixed premium that does not change
    over time. Each premium payment
    will be the same, from the first
    payment until the last payment.

  • Dividend Eligibility

    Although a universal life policy comes
    with flexibility and other features a
    whole life policy doesn’t have, one
    feature it does not offer is dividend
    eligibility, even if the insurer
    participates in dividends for other
    products.

    Depending on the specific policy
    whole life insurance may earn
    dividends which can be paid as cash,
    fund cash value, buy more
    life insurance or pay premiums.
    Mutual insurance companies
    offering whole life insurance
    may offer dividends.

  • Borrow or Withdraw
    Cash Value

    Once a minimum threshold has been
    reached, you can borrow against or
    withdraw cash value. The cash value can
    also be used to pay premiums Taking out
    too much money could cause the policy to
    lapse.

    You can borrow or withdraw the
    policy's cash value. If the amount is not returned
    with interest, any outstanding
    balance will reduce the death benefit
    paid to the beneficiary.

  • Rider Eligibility

    Universal life policies are eligible for
    riders, which depend on the company and
    policy type. For instance, a no-lapse
    guarantee rider can protect the policy
    from lapsing when changes occur, like
    interest rate fluctuations.

    Whole life policies are eligible for
    riders, which can differ by product
    and insurer. One popular rider is
    the long-term care rider, which allows
    you to access part of the death
    benefit while still alive to pay
    for long-term care expenses.

  • Use for Estate
    Planning

    Although you can use universal life for
    estate planning, it might not be the
    best fit unless the policy is closely
    monitored, as factors can cause it to be
    underfunded and lapse without a no-lapse
    guarantee rider.

    A whole life policy can help pay for
    estate taxes, making it a popular part
    of estate planning for high-income
    earners.

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?

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    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.

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    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.

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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 the Author


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Mandy Sleight is a professional freelance writer and licensed insurance agent. She has her property, casualty, life, and health licenses and has been working in the industry since 2005. Mandy has worked for well-known insurance companies like State Farm and Nationwide Insurance, and most recently as the Operations Coordinator for a start-up employee benefits company.

Mandy earned her Bachelor of Science degree in Business Administration and Management from the University of Baltimore and her Master in Business Administration from Southern New Hampshire University. She uses her vast knowledge of the insurance industry and personal finance combined with her writing background to create easy-to-understand and engaging content to help readers make smarter choices with their budget and finances.