Reasons to Choose Universal Life Insurance

Universal life insurance may be a good fit if you have a lower income, if you: Are risk-tolerant Don’t need a guaranteed interest rate Want premium and death benefit flexibility Don’t care about dividends Can monitor your policy to prevent a lapse

Reasons to Choose Whole Life Insurance

Whole life insurance may be a good fit if you have a higher income, if you: Are risk-averse Want guaranteed interest to predict cash value growth Prefer locked-in premium and death benefit Want a dividend option Don’t want to monitor your policy Anticipate a need for long-term care or supporting a lifelong dependent

How much does universal life insurance cost compared to whole life insurance?

Compared to whole life, universal life insurance is usually cheaper for the same coverage. Universal life does have fixed premiums like whole life, but only if you don’t make changes. The premium can fluctuate based on policy features or if you increase or decrease the death benefit amount.

Should I get universal or whole life insurance?

Whether you should get universal or whole life insurance is a personal choice. Discussing your needs and goals with a financial professional can help you determine which policy is best for your individual situation.

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

Q: What is the difference between universal and whole life insurance?

The differences between whole and universal life include cost, features and flexibility. Whole life offers a guaranteed death benefit, premiums and cash value interest rate. Universal life provides flexibility, so you can change the death benefit and premiums as your needs change, but interest rates aren’t guaranteed like with whole life.

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

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.

What Is the Difference Between Universal and Whole Life Insurance?
Cost of Universal Life Insurance vs. Whole Life Insurance
Should You Get Universal or Whole Life Insurance?
Frequently Asked Questions

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

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

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?

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.

MONEYGEEK EXPERT TIP

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.

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

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

Mandy earned her Bachelor of Science degree in Business Administration and Management from the University of Baltimore and her Master of 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 budgets and finances.

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