Whole vs. Universal Life Insurance

If you're wondering what is the difference between a whole vs. universal life insurance policy, both types of policies are permanent, which means they last until the policy-holders death. However, whole life insurance is fixed and you must make your payment on time to keep coverage.

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Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health in...

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Benjamin Carr was a licensed insurance agent in Georgia and has two years' experience in life, health, property and casualty coverage. He has worked with State Farm and other risk management firms. He is also a strategic writer and editor with a background in branding, marketing, and quality assurance. He has been in military newsrooms — literally on the frontline of journalism.

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Reviewed by Benji Carr
Former Licensed Life Insurance Agent Benji Carr

UPDATED: Apr 27, 2022

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Quick Facts

  • Both whole and universal life insurance policies are permanent life insurance policies.
  • Whole life insurance is fixed and you must make your payments on time to maintain coverage.
  • Universal life insurance is more flexible, but your growth-potential is reliant on market stability.
  • Whole life insurance usually costs more than universal life insurance.

What is the difference between whole vs. universal life insurance and which one is right for you? While there are many different types of term life insurance, these two policies are considered to be permanent life insurance. This means they last the duration of our life.

Whole life insurance has fixed premiums and a guaranteed cash value accumulation. However, universal life insurance is flexible, the premiums, death benefit, and savings element can all be changed.

Read through our quick guide to learn the pros and cons of both whole and universal life insurance policies so you can choose the right option for you.

What’s the difference between whole life insurance vs. universal life insurance?

What is the difference between whole life vs. universal life insurance? Both types of policies will last for the duration of your life. Unlike term life insurance, there is no end date to the policy.

Both policies might be permanent, however, there are also many differences between universal life insurance vs. whole life insurance. For example, whole life insurance is fixed. This means that premiums, death benefits, and other details cannot be changed.

Universal life insurance, on the other hand, has more flexibility. Your premiums, death benefit, and the savings element can be changed.

How does universal vs. whole life insurance compare when it comes to premiums? Whole life insurance tends to be more expensive than universal life insurance. This is mostly because of the flexibility allowed with a universal policy.

In the table below, you can see the average monthly rates for a $100,000 whole term life insurance policy by age from State Farm at the preferred rate level.

Whole Life Insurance Average Monthly Rates by Age at the Preferred Rate
AgeAverage Monthly Preferred Life Insurance Rates
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As you get older, your life insurance quotes will be higher. This applies to both universal and whole life insurance policies.

Use these rates as guidelines, as many factors will impact your individual rates. Your rates will be subjected to life insurance underwriting guidelines. For example, a life insurance underwriter will consider your age, gender, and medical history when calculating your quotes.

What about when it comes to dividends? Only whole life insurance policies pay annual dividends to the policyholder. Universal life insurance will not have any associated dividends attached to it.

According to the law experts at NOLO, not every person needs life insurance. Specifically, if you have no dependents and have enough savings to pay for your end of life expenses, life insurance might not be necessary.

In the next sections, we’ll look at each life insurance policy type in more extensive detail to help you choose which type of permanent life insurance policy is right for you.

Now that you know the difference between whole life and universal life insurance, let’s find out more about each type of insurance.

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How does whole life insurance work?

How exactly do whole life insurance policies work? Whole life insurance policies combined life insurance coverage with savings opportunities. As long as you pay your life insurance premiums on time, you’ll be covered.

A portion of your premiums will be put into a high-interest bank account or an investment account. Therefore, with each premium you pay, your total cash value increases.

These savings are usually tax-deferred. You will be able to take loans out against the policy once you meet a minimum cash value in the high-interest bank or investment account.

A whole life insurance policy is usually fixed. This means our premium amount will never change, nor will the death benefit. This is because whole life insurance is intended to be a long-term investment paid out to your beneficiary after your passing.

But what are the pros and cons of this type of life insurance policy? Keep reading to find out.

What are the pros and cons of whole life insurance?

One of the biggest pros associated with a whole life insurance policy is the fact that the cash value is guaranteed. This means you can borrow against it or surrender the policy to get your cash value in case of an emergency.

The annual dividends are another benefit. You can either receive them as cash, allow them to accumulate interest, or use them to pay for your policy premiums.

However, the con is that whole life insurance is expensive. In fact, many people struggle to afford this type of policy.

To get the best whole life insurance rates, invest in a policy while you’re young, and have no pre-existing medical conditions. This will ensure you’ll receive lower monthly premiums.

If you are older or have a rocky medical history, this type of policy might not be feasible.

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How does universal life insurance work?

Now let’s discuss universal life insurance to help you determine if this is a better fit for you than a whole life insurance policy. Universal life insurance is sometimes referred to as adjustable life insurance. This type of policy offers a lot of flexibility for the policy-holder.

Part of every payment you make will go into an investment account. Any interest you accrue is credited to your account. The interest you earn will grow and is tax-deferred. If you invest in variable universal life insurance, you’ll have a separate subaccount that invests your cash into the market.

You will have the option to reduce or increase your death benefit amount at any time as soon as there is cash in the account. However, you might be subject to a medical exam.

In some cases, you are also able to pay your premiums at any time and in any amount. However, this will be subject to certain limits. You can also use your investment account to pay for your premiums.

In the next section, we dive into the pros and cons of a universal life insurance policy. Keep reading.

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What are the pros and cons of universal life insurance?

One of the biggest pros of a universal life insurance policy is your ability to change the death benefit and monthly premiums without surrendering your policy. You have the ability to increase, decrease, and stop your payments at almost any time.

However, be sure to check with your provider about the status of your cash-value fund before stopping your payments. If your cash-value is insufficient, it could cause your policy to lapse.

You will also be able to withdraw and borrow funds from your cash value, which is another benefit. Just be careful not to lower the amount too much, in case of emergency.

One of the disadvantages of universal life insurance is that the interest rate is usually dependent on stock market conditions. If the stock market is performing poorly, your potential savings growth will be minimal or non-existent.

There are also high taxes and fees associated with surrendering your policy. If you ever withdraw money from your account, those taxes and fees might still apply.

How to decide if whole or universal life insurance is right for you?

The right type of permanent life insurance for you depends on a variety of factors. Your financial situation, the number of dependents you have, and other factors will need to be considered. You’ll also want to determine exactly how much life insurance do you need.

According to the Insurance Information Institute, 1 in 5 Americans believes they do not have enough life insurance. By researching ahead of time the right level of protection you need for your family, you’ll have an easier time determining the right policy for your unique situation.

A whole life insurance policy is a great long-term investment if you have a dependent adult child, or to help your family with your post-death expenses. However, if you are older, it might be difficult to purchase this policy for reasonable rates.

A universal life insurance policy might be better than whole if you are older, as the rates are more flexible. However, your potential for growth is fully reliant on the stock market. Not everybody is comfortable making that kind of gamble with their life insurance.

You are now an expert on the differences between a whole versus universal life insurance policy. Refer back to this guide as much as needed while you compare whole life insurance vs universal life insurance rates.

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