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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
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

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

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

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

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

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

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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Compare Life Insurance Rates

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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

Mandy Sleight, Licensed Insurance Agent headshot

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.