Whole Life vs. Indexed Universal Life: Which Coverage is Right for You (2021)

If you are considering whole life vs. indexed universal life insurance, there are important differences. Whole life insurance offers set premium payments and a guaranteed death benefit for your loved ones. Indexed universal life offers an option for utilizing the cash value of the policy and could allow greater returns depending on how your portfolio performs. In many ways, whole life and indexed universal life insurance serve two different purposes, so it’s important to evaluate what you want in a policy before you commit.

Free Insurance Comparison

 Secured with SHA-256 Encryption

Natasha McLachlan is a writer who currently lives in Southern California. She is an alumna of California College of the Arts, where she obtained her B.A. in Writing and Literature. Her current work revolves around insurance guides and informational articles. She truly enjoys helping others learn more about everyday, practical matters through her work.

Full Bio →

Written by

Laura Walker graduated college with a BS in Criminal Justice with a minor in Political Science. She married her husband and began working in the family insurance business in 2005. She became a licensed agent and wrote P&C business focusing on personal lines insurance for 10 years. Laura serviced existing business and wrote new business. She now uses her insurance background to help educate...

Full Bio →

Reviewed by Laura Walker
Former Licensed Agent

UPDATED: Jul 16, 2021

Advertiser Disclosure

It’s all about you. We want to help you make the right coverage choices.

Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We are not affiliated with any one insurance company and cannot guarantee quotes from any single insurance company.

Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about insurance. Our goal is to be an objective, third-party resource for everything insurance related. We update our site regularly, and all content is reviewed by insurance experts.

The Rundown

  • Whole life insurance offers clear-cut premium costs and a death benefit your loved ones can count on
  • Indexed universal life insurance (IUL) gives policyholders the chance to earn more in their returns and utilize more of the policy’s cash value
  • IUL premium rates are likely to increase as the policy ages

If you’re searching for life insurance, you will always have plenty of options to sort through.

There are term life policies, which are relatively inexpensive, and there are permanent life insurance options, which come in many shapes and sizes and vary in countless ways.

Two of the options you might consider as you do your research are whole life vs. indexed universal life (IUL). In some ways, the whole life insurance basics are similar to those associated with IUL, but there are also many differences.

As you learn more about whole life vs. indexed universal life insurance rates, enter your ZIP code into our free tool above to find options that might work for you.

What is the difference between whole life and indexed universal life?

Whole life insurance policies are extremely popular, and many professionals consider them the safest and most helpful option when it comes to taking care of family members and loved ones after you pass away.

Whole life policies offer individuals guaranteed death benefits with fixed premiums that will not increase with time. This means that as you get older, your life insurance policy will not become more expensive.

Whole life policies also carry a cash value; this allows policyholders to borrow against their life insurance in order to meet their financial needs in times of crisis.

There are a few potential downsides to a whole life insurance policy, which include:

  • An interest rate that is not guaranteed
  • Premiums that are not flexible and must be paid every month
  • A lower return based on the general floor rate of the policy

In comparison to whole life insurance policies, indexed universal life insurance policies are newer and a bit more confusing.

An IUL policy gives individuals an option to use the money from premiums toward a cash account. The cash amount accrues interest based on an underlying portfolio or index.

Some insurance companies create a cap rate on the return of a policy between 0% and 4%. Because of specific cap rates and participation rates from individual insurance companies, it is possible that policyholders could get a lower return than what they expect.

IULs offer the potential for higher returns, but there’s no way to be sure, as an indexed universal life policy is not fixed when it comes to rates of return. Premiums can be flexible for IUL policies, and there is an option to borrow against the cash value of your policy as you age.

Downsides to IUL policies include:

  • A dependence on equity performance
  • Premiums that fluctuate and will likely cost more over time
  • More expenses than a whole life policy
  • A reduction in the death benefit based on premium payments

Compare The Best Insurance Quotes In The Country

Compare quotes from the top insurance companies and save!

 Secured with SHA-256 Encryption

Which is better, whole life or universal life?

Deciding whether whole life insurance or an IUL policy is better for you will depend on a variety of factors.

If you are looking strictly for life insurance, whole life might be your best bet. But an IUL policy can function almost like a retirement option since its cash value grows over time and can even be used toward premium payments.

With IUL, policyholders can take out tax-free distributions if necessary, though this could eventually impact the death benefit of a policy if the amount is not paid back.

While whole life policies are considered fairly straightforward, IUL policies have a lot of wiggle room. There is a chance that companies could flaunt biased numbers and return options in order to gain clients when, in reality, equity indexes are not performing as well as they say.

Premium payments are an important consideration for many who are looking to purchase life insurance, so you should always do your research to find whole life and indexed universal life insurance quotes from multiple companies to compare overall costs.

Which should I choose, whole life or indexed universal life?

If you are looking for simple permanent life insurance, you should probably consider a whole life policy. This will guarantee a death benefit for your loved ones, and you will know what your premiums will cost throughout the duration of your policy.

If you want to use a policy as a sort of backup for retirement, you may be more interested in an IUL policy. You could earn more in your returns, and you can access the policy’s cash value and use it to pay for your premiums.

Since there is no singular whole life or indexed universal life insurance company, your best bet for finding the coverage you need is to shop around for the best options. Compare quotes and policy details before you buy whole life or indexed universal life insurance coverage.

If you’re looking for affordable whole life vs. indexed universal life insurance, enter your ZIP code into our free tool below to get started.

Free Insurance Comparison

Compare quotes from the top insurance companies and save!

 Secured with SHA-256 Encryption