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

Comparing whole vs. universal life insurance is common, as they are both popular choices for permanent coverage. Whole life insurance offers set premium payments and a guaranteed death benefit for your loved ones. Universal life insurance could allow for greater returns depending on how your portfolio performs and offers an option for utilizing the cash value of the policy during your lifetime. While whole and universal life insurance are somewhat similar, whole life is more expensive but offers more stability than universal life policies.

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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.

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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...

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Reviewed by Laura Walker
Former Licensed Agent

UPDATED: Jul 16, 2021

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The Rundown

  • Whole life insurance offers dependability and a standard premium
  • Universal life insurance allows for flexibility in the death benefits and generates a cash value policyholders can borrow against
  • Whole life tends to be more expensive, while universal may not garner great returns on investments

The task of deciding on the right life insurance can be daunting. There are so many options to choose from, and the nuances of different policies can be difficult to understand.

If you’re searching for a permanent life insurance policy, you may be considering whole vs. universal life insurance.

Since they are both considered permanent life insurance, whole and universal life insurance offer lifetime coverage and carry a cash value component.

It’s important to understand both the universal and whole life insurance basics before you commit to a policy.

As you consider whole vs. universal life insurance rates, enter your ZIP code above to get free quotes from companies in your area.

Which is better, whole or universal life insurance?

Both whole and universal life insurance typically have two parts: a savings portion and an insurance portion. Because of the way these policies are set up, premiums can be higher than with term life policies.

Additionally, whole and universal life each offer the option of borrowing against the life insurance and utilizing the cash value of the policy.

It’s easy to see that whole and universal life insurance are similar in some ways. But the two types of permanent life insurance also differ greatly in other respects.

For example, whole life insurance is considered more consistent than universal life insurance. Whole life insurance offers fixed premiums that will not fluctuate and a cash value amount that is guaranteed.

In contrast, universal life insurance allows for flexibility in both premium payments and the amount of the death benefit.

The dependency of a whole life policy is great for policyholders who have serious and long-term responsibilities, like a dependent adult child.

With a whole life policy, the insurance company uses high-interest investment opportunities to ensure the cash value of the policy increases with every payment of the premium.

Additionally, a whole life policy offers a savings portion that builds up cash value and can be used if you ever need it.

Universal life insurance, on the other hand, offers flexibility in place of the rigidity found in other types of policies. Policyholders can alter their death benefits and can pay premiums in different amounts and at different times.

Payments to a universal life account go into an investment portfolio; any money you earn from investments is then credited to your account. This increases the cash value of the policy over time.

With a universal life insurance policy, you can change the death benefit either by increasing or lowering it, and you can use the cash value your account carries to pay your premiums, as long as there is enough money in your account to cover the cost.

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Why is whole life more expensive than universal life?

While a whole life policy has a lot to offer by way of its cash value and guaranteed death benefit, this type of policy also has some specific drawbacks.

For many consumers, the worst thing about a whole life policy is its cost. Because this type of policy offers fixed premiums, specific death benefits, and other benefits that are acquired while you’re living, it can be a pretty expensive policy to have.

Most people are trying to find affordable whole or universal life insurance options, so steep costs for premiums may be a deal breaker. 

The best advice with a whole life policy is to purchase it when you are younger, as younger people receive lower premiums, and then maintain it throughout the duration of your life.

What are the disadvantages of universal life insurance?

Universal life insurance, like whole life insurance, has both benefits and drawbacks.

Because universal life insurance policies are flexible, they offer comfort and stability, as policyholders know they can adjust the death benefits and overall coverage should they ever need to.

Universal life also allows individuals to withdraw cash from their policies if they need it in a pinch.

With a universal life insurance policy, the main drawback is the dependence on stock market conditions when it comes to the interest rate. Should the market perform poorly, the policy will not earn any returns on investments.

Universal life policies may also be subject to fees by way of surrender charges or withdrawals from the cash value of the account.

While there is no one whole or universal life insurance company to get quotes from, there are many companies that offer both policy types. It’s important to shop around to get rates for these types of policies before making any final decisions.

Do I choose whole or universal life insurance?

The choice between whole or universal life insurance is up to you. If you want a policy that is dependable and will not alter during your lifetime, a whole life insurance policy may be your best bet.

If you’re looking for flexibility rather than rigidity when it comes to premium payments and overall death benefits, you may be interested in a universal life insurance policy.

Before you buy whole or universal life insurance, you should consider your personal responsibilities and what you want for your loved ones after you pass away.

If you’re searching for whole vs. universal life insurance quotes, enter your ZIP code into our free tool below to find top rates in your area today.

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