Whole life and universal life insurance have many similarities, and both are great options to help protect your family. The main difference is that whole life usually doesn’t change—many features are guaranteed for life—while universal life offers flexibility.
What is the difference between whole life and universal life insurance?
You’re thinking about life insurance to protect your family. That’s great! The right policy can give you the peace of mind that comes from knowing your loved ones will be safe and able to maintain the life they are accustomed to should something happen to you.
We’ll be the first to admit that life insurance choices can be confusing. There are different terms and options and opinions. Don’t let that stop you.
While there are dozens of names and ways to offer different life insurance policies, almost all fall into three basic categories:
- Term Lifecovers a set period of time
- Whole Lifeoffers guaranteed lifetime protection
- Universal Lifeoffers a flexible long-term option
This article will cover the similarities and differences between whole life insurance and universal life insurance.
Whole life is permanent, while Universal Life offers long-term protection.
With whole life, your premiums are fixed and guaranteed never to rise1. As long as you continue to pay them, you can count on the life insurance benefits being paid to your beneficiaries. With universal life there are no fixed premiums and you have more flexibility on when you make payments. However, if the policy is not adequately funded, it could end. Additionally, the cost to keep the policy can go up significantly as you get older. Take that into account when you decide which is better for you.
Whole life insurance offers more stability.
Whole life has a guaranteed death benefit that will never decrease, as long as premiums are paid. Your family will always get the amount you set your policy for at minimum. There’s also the potential for dividends to increase the amount of coverage over time. Your premiums will also never change. For many, this reliability is the most important factor in their decision.
Universal life insurance is more flexible.
Universal life offers more control, but it requires oversight and doesn’t have a guaranteed death benefit. You can adjust your policy, and even your premiums (within limits), as your life changes. Without adequately funding it, your policy can potentially end since the death benefit is not guaranteed, but universal life often gives you the most long-term protection for your dollar.
Both can build cash value.
The cash value of a life insurance policy is an important way to save for the future, providing a safety net during life. You can borrow against the cash value of your policy to pay for unexpected expenses, allowing you to be better prepared for whatever lies ahead2. Whole life insurance offers guaranteed cash value build up over the life of the policy. Universal life insurance policies have the potential to accumulate cash value, but it can fluctuate over time based on how you fund the policy and other factors.
Why choose whole life insurance?
Whole life insurance offers permanent, stable protection and access to cash value when you need it. It’s designed for someone who wants to “set it and forget it,” knowing their loved ones will be protected when they pass.
Premiums are guaranteed to never increase.
Once you customize your policy to the benefits and premiums that fit your situation, it’s set. You don’t have to do anything else, and you never have to worry about the cost increasing or the benefits changing.
Builds cash value.
With whole life, the cash value of your policy grows tax deferred. This valuable asset can be used whenever you need it, for whatever you choose. It can cover unexpected medical costs, provide additional income in retirement, or even be used for a grandchild’s college tuition.
Has growth potential through dividends.
Dividends provide an opportunity for your policy to grow more over time. They can be used to pay premiums, add to the cash value, or even be taken as cash. Dividends are not guaranteed, but New York Life has paid them every year since 1854.
Related:Explore whole life insurance
Why choose universal life insurance?
Universal life insurance generally gives you the ability to fully customize your protection up-front and make adjustments down the road. It’s for those who want to be able to adapt their policy as life changes.
Fits your needs now and in the future.
There are many ways to configure your universal life policy. You can design your coverage to last for as little as fifteen years, for your lifetime, or somewhere in between. You can adjust your premium payments as your income fluctuates and even increase or decrease your death benefit as your needs change over time.
Lower premiums than permanent life insurance.
Universal life generally offers the most life insurance benefit for your dollar. This is mainly because the death benefit and cash value growth are not guaranteed, like they are on whole life.
Related:Explore universal life insurance
Which is better, whole life or universal life?
That will depend on your circ*mstances and desires. If you’re still unsure which type of policy is best for you, it can help to speak with a financial services professional about the different ways insurance products and features can be combined. Ourexperienced agentscan walk you through your options and help you build a strategy that is personalized to your family’s needs.
1Any guarantees of a policy are based on the claims-paying ability of the issuer.
2Accessing the cash value will reduce the available cash surrender value and the death benefit. Loans will involve interest payments.
In Oregon the Policy Form Number for New York Whole Life Insurance is ICC18217-50P (4/18); the Form Number for New York Life Universal Life is ICC19-319 51P
FAQs
With whole life, your premiums are fixed and guaranteed never to rise1. As long as you continue to pay them, you can count on the life insurance benefits being paid to your beneficiaries. With universal life there are no fixed premiums and you have more flexibility on when you make payments.
What is the disadvantage of universal life insurance? ›
Universal policies typically don't have fixed interest rates, so they are less predictable than whole life insurance policies. If you miss a payment on a universal life policy or don't contribute enough to the cash value, you may end up making several large payments to keep the coverage.
What are 2 disadvantages of whole life insurance? ›
A more complex product than term life insurance. Higher premiums than term life insurance. Could be costly if coverage lapses early.
Which life insurance builds cash value the fastest? ›
For starters, the life insurance policies that offer immediate cash value will be permanent life insurance policies such as whole or universal life insurance. For those that aren't familiar, term life insurance doesn't have a cash value component although the death benefit sometimes has a waiting period as well.
What happens if I outlive my universal life insurance? ›
However, some plans reach maturity dates as early as age 85, meaning you could potentially be alive once the plan reaches its maturity date – especially as life expectancy continues to increase. If you are alive when your universal life insurance plan matures, generally you may receive a payment and the policy ends.
What is the downfall of universal life insurance? ›
Disadvantages of Universal Life Insurance
Policy loans and withdrawals deplete your cash value and could cause your policy to lapse without extra premium payments.
Which is better whole life or universal life? ›
Whole life and universal life insurance have many similarities, and both are great options to help protect your family. The main difference is that whole life usually doesn't change—many features are guaranteed for life—while universal life offers flexibility.
Why is whole life not a good investment? ›
The cash value is slow to grow
Eventually, a higher percentage of your premium will go toward your cash value. But this takes a while, so it can take 10 to 15 years (or even longer) for you to build up enough cash value to borrow against.
What is the problem with whole life insurance? ›
While there are many whole life insurance benefits, there are some drawbacks—like higher premiums (compared to term life insurance), lack of flexibility, slower growth and potential penalties. Consider these as you choose the best product for your needs and lifestyle.
What is the biggest risk for whole life insurance? ›
Mismatches With Policyholder's Stage of Life
Whole life insurance is meant to last a lifetime, but sometimes life changes occur that result in the policyholder's needs not being met by the existing policy.
It's an attractive option for those who need life insurance quickly or have pre-existing conditions. There are three primary types of instant life insurance: term life insurance, universal life insurance and whole life insurance.
What is the cash value of $100,000 whole life insurance policy? ›
However, most people receive around 20% of the face value on average, according to LISA. So, if we're using that 20% average to calculate the cash value of a $100,000 life insurance policy, the cash value of the policy would be $20,000.
What type of life insurance gives the greatest amount? ›
Term insurance is initially cheaper than other types of policies that offer the same amount of protection. Therefore, it gives you the greatest immediate coverage per dollar.
Do I get money back if I cancel my universal life insurance? ›
If you have a whole life or universal life insurance policy, you can also cancel the policy at any time. You won't get back any premiums you paid for the policy, but you may receive a payout from the cash value, if any has accrued.
Can you cash out universal life? ›
The cash value in your whole or universal life insurance policy can come in handy when you need funds for large, ongoing or unexpected expenses. There are four ways to get the cash from your policy while you're still alive: borrow, withdraw, surrender, or sell.
Can you write off universal life insurance? ›
No matter the type of life insurance policy you buy, its premiums aren't tax-deductible for individuals — even if you're self-employed. The IRS considers these payments to be a personal expense, so you don't get a tax break on them. However, they can sometimes be tax-deductible for companies.
Which problem was universal life insurance? ›
The only payment your family will get is the death benefit amount. Plus, if you ever withdraw some of the cash value, you will subtract that same amount from your death benefit amount. Some disadvantages of getting universal life insurance include higher premiums, surrender fees, lapse potential and uncertain returns.
Why would someone buy universal life insurance? ›
Like whole life, a universal policy can provide lifetime protection while building cash value with tax advantages. UL also gives you the flexibility to raise or lower premiums within certain limits, so it can cost less than whole life coverage.
Can you take money out of a universal life insurance policy? ›
The cash value in your whole or universal life insurance policy can come in handy when you need funds for large, ongoing or unexpected expenses. There are four ways to get the cash from your policy while you're still alive: borrow, withdraw, surrender, or sell.
What happens if you stop paying premiums on universal life insurance? ›
If you need or want to stop paying premiums, you can use the cash value to continue your current insurance protection for a specified time or to provide a lesser amount of death benefit protection covering you for your lifetime.
