All life against. Universal Life Insurance – Forbes Advisor


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A life insurance policy can help ensure that your loved ones won’t struggle with money if you die. But with so many life insurance options, choosing the right type of policy can seem overwhelming.

The more you know about life insurance options, the better able you are to choose the best life insurance.

When purchasing life insurance, you may have to choose between whole life insurance and universal life insurance. What are these two types of life insurance and how can you find out which policy is right for you?

The differences between whole life and universal life

Whole life and universal life are two types of permanent life insurance policies.

Permanent life insurance stays in effect as long as you pay premiums and increases its cash value over time.

This contrasts with term life insurance, which has stable rates for a set period (like 20 years) and then expires. You can renew for a higher premium each year thereafter, but higher rates can quickly become unaffordable. In addition, term life insurance does not create cash value.

Although whole life insurance and universal life insurance are two types of permanent life insurance, there are key differences between them.

Key Differences Between Whole Life Insurance and Universal Life Insurance

With whole life insurance, neither your premiums nor your death benefit ever change. The cash value of a whole life insurance policy accumulates at a fixed rate.

On the other hand, universal life insurance allows you to adjust both your premiums and the death benefit to better suit your needs. This type of policy can also increase cash value. The growth rate depends on the type of universal life insurance you purchase:

  • Guaranteed universal life insurance: Cash value growth may be minimal, but it provides a less expensive way to get lifetime coverage.
  • Indexed universal life insurance: Cash value growth is tied to a specific index, such as the S&P 500.
  • Variable universal life insurance: You choose investment sub-accounts and your cash value gains depend on investment performance.

Which is more expensive: whole life insurance or universal life insurance?

Whole life insurance costs more than universal life because of all its guarantees. Typically, you’ll pay about twice as much for whole life insurance as for universal life insurance.

Here’s an example of what we found by averaging the monthly premiums for whole life insurance and universal life insurance for healthy men and women who don’t smoke.

Average Whole Life vs. Universal Life Rates

Why does whole life insurance cost so much more than universal life insurance? Because the amount of the premium payment, the death benefit and the growth of your cash value are guaranteed not to change.

“Whole life insurance premiums are typically higher than universal life insurance premiums to cover embedded benefits,” says Amanda Kuhl Sarrubbo, head of product management at New York Life.

The cost of whole life insurance does not change over the years. You will pay the same amount for the duration of the policy. Also, the death benefit amount will not change.

Sarrubbo adds that with whole life insurance, you are generally eligible to receive dividend payments if your insurer is a mutual company.

However, with universal life, premium amounts may change. Unlike whole life insurance, where premiums are fixed, you can make a minimum payment each month for a universal life policy, which can help keep premiums more affordable.

You can also adjust the death benefit (lower or higher) of a universal life policy over time. If you increase the benefit, expect to pay a higher premium for this privilege.

All life against. Universal life insurance: which one is right for you?

It can be helpful to sit down with a financial advisor to develop a personal financial plan. This will allow you to better see which type of life insurance corresponds to your objectives. A simple term life insurance policy may be all you need.

Generally, those who value stability and guarantees might be more attracted to a whole life insurance policy. You know exactly how much death benefit your loved ones will receive and your premium will not change as long as you own the policy.

A whole life policy also creates a constant cash value that you can draw upon before your death if needed. And mutual life insurance companies typically pay dividends to policyholders that can be added to cash value or used to help pay premiums. Be prepared to pay for all these benefits.

“Whole life insurance is great for people who want guarantees and the ability to accumulate savings,” says Sarrubbo.

On the other hand, if you prefer flexibility, a universal life insurance policy may be the best choice. You may want to be able to change your life insurance coverage as your personal circumstances change.

For example, with a universal life policy, you can increase your premiums – and the potential amount of your death benefit – when times are good, or lower your premiums following a job loss or death. other financial difficulties.

“This [universal life] offers greater flexibility in premium and death benefit coverage,” says Sarrubbo.

Certain types of universal life insurance may also make more sense if you’re comfortable with a higher risk of cash value growth in exchange for the potential for better cash value accumulation. You can find different cash value growth options among universal life insurance types, from low risk to high risk, while whole life insurance only offers a low risk fixed rate option for the cash value growth.

Both types of life insurance have something to offer. In your search for buying life insurance, remember that term life insurance may be your best option.

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