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

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.