Whole life VS Universal life insurance

Choosing the right life insurance policy for you is a big decision. You want to properly protect your family, and there are so many life insurance policies to choose from! A good place to start, though, is with the most popular types of life insurance: permanent and term life insurance policies. Of those two, permanent life insurance policies offer you lifetime protection, and have a cash value that builds over time, making them a great choice for many people. 

If you’ve decided that a permanent life insurance policy is the right way to go for you, you will still need to narrow down your options. For example, there are two main types of permanent life insurance policies to choose from: whole and universal. If you are considering a permanent life insurance policy, understanding the similarities and differences between these two policies can help you make the right choice.

Whole Life Insurance

This type of life insurance policy is the most common type of permanent life insurance. Whole life policies have a fixed premium, which means your premium payments will remain the same for the life of the policy. In addition, your cash value will continue to grow at a steady rate, and once you meet a minimum required cash value, you can borrow against it, similar to taking out a loan.

The benefits of whole life insurance include:illustration of an infinity sign with the cycle of life

  • Peace of mind throughout your whole life, as long as you pay your premiums.
  • You can borrow against your cash value if you need money.
  • Your family will get a guaranteed death benefit that will not fluctuate.
  • Because premiums don’t change, your payments will be easy to budget for. 
  • Any cash value growth is tax-deferred.

Universal Life Insurance

Universal life insurance is another type of permanent life insurance that you should look into if you’re considering a permanent life insurance policy. With this type of policy, your monthly premiums are divided between maintaining your death benefit and growing your cash-value account. The insurer will set a minimum premium and if you choose to pay more, that money will go towards helping your cash value grow faster. In addition, your insurer will set a minimum interest rate when you purchase your policy, and your cash value will grow based on current interest rates. Your interest rate can go up and down based on the market, but it will never go below the minimum rate.

The great thing about universal life insurance is that it offers more flexibility than most types of policies. For example, you have the flexibility to adjust how much you pay for your premiums by accessing some of your built-up cash value: after your cash value grows to a certain amount, you can use it to pay premiums, or you can leave it alone to continue to grow. You also have more options with universal life than with whole life insurance: for example, you can choose a level premium and death benefit, meaning your payments won’t change, or you can choose an adjustable plan, allowing you to raise or lower your premiums. 

The benefits of universal life include:

  • You can skip premium payments if you have enough cash value built up to cover your payments. 
  • You’ll have the flexibility to change your premiums and death benefit if you cannot afford your premiums.
  • Your cash value can grow faster if interest rates are high, and any interest you earn from your cash value will not be taxed until you withdraw it.

Which Should You Choose?

When trying to choose between whole life insurance and universal life insurance, there are some things to consider. Specifically:

  1. Would you like flexibility or to stick to a set monthly budget?– Whole life insurance premiums stay the same, but universal life insurance premiums can change.torso of a woman holding a tablet with a bar graph moving upward
  2. The earning potential of your policy– Universal life insurance premiums are less expensive than those of whole life insurance, because you take a higher risk with your interest rate, and might earn less in interest than with a whole life insurance policy. 
  3. Are your finances secure? If you have a set budget and can afford whole life insurance, it might be a great fit. However, if you need flexibility in case your life changes and you need to make cuts, universal life is great because you can adjust your premiums.

Both policies offer you and your family protection for your whole lifetime, and both have their own set of unique features and benefits. Finding the right permanent life insurance policy comes down to your financial situation and your family’s needs. If you are looking for more flexibility,  a universal life insurance plan is best for you, but if you would like to stick to routine monthly premiums that you can budget for,  whole life insurance is best. Or, if you would rather stick to a fixed interest rate and a set death benefit, rather than taking your chances on how well the market is doing, you’ll want to stick with whole life.

The best way to find the right life insurance policy for you and your specific needs is by working with an agent who specializes in life insurance. We have provided the top life insurance companies in the nation below; each offers hassle-free assistance and the most competitive rates. Always check multiple sites to make sure you have bargaining power and know the advantages of each company. Make sure a hard time isn’t made harder by a financial burden, check life insurance rates today.

Universal Life Insurance Explained

If you’ve made the decision to buy life insurance, congrats! As you’ve been researching policies, you’ve probably come across multiple types of policies, including universal life insurance, which might be a good option for you because of the many benefits it offers. Universal life insurance is a type of permanent life insurance that covers you for life as long as you pay your monthly premiums, and, like whole life insurance policies, universal life insurance has cash value that grows over time. What makes it more appealing than other types of whole life, though, is that it is less expensive. But that is just one of the advantages of universal life insurance.

How Universal Life Insurance Works

Having a universal life insurance policy is like having two forms of financial coverage in one. With one of these policies, you will pay a monthly fee that splits into two parts: one part goes toward your life insurance policy and the other part goes into savings, similar to a savings account. 

The great thing about universal life insurance is that it’s all about flexibility. You have the option to increase or decrease your death benefit, as well as the flexibility to change the price of your premium. You can choose to pay the minimum premium amount set by your insurance company or you can choose to pay more; you can even skip a payment as long as there is enough cash value in your policy to cover it. If you decide to pay more than the minimum premium amount, that extra payment is added to your cash value. This cash value will grow over time with an annual interest rate that is set by your life insurance company. This is why it is important to shop around and compare all of the insurance companies offering policies in your area.dollar bills rolled up and stuck into dirt.

Cash Value Options

In addition to the flexibility of universal life insurance, one of the most popular parts of this type of policy is undoubtedly the cash value that it offers. What’s even better is that you have multiple ways to utilize this money:

  • Policy Loans- You can access your cash value as a policy loan, meaning you will be charged a small amount of interest. You don’t have to repay the loan, but any loans that haven’t been repaid will be deducted from your death benefit after you pass.
  • Paid-up Policy– With a universal life insurance policy, you have the option to stop paying premiums once you reach a certain amount of cash value. Essentially the plan pays for itself after a while.
  • Withdrawals- Instead of taking out a loan, you can withdraw money from your cash value. You will not have to repay it and will not have any interest that will be deducted after you pass. Be aware, though, that withdrawing money from your policy is considered a surrender of the net cash value, meaning your death benefit and your cash value will be reduced. 
  • Policy Surrender- If you want all of the cash in your policy and no longer want the death benefit, you can surrender the policy and take all of the cash that has accrued over time. You will have to pay some fees for surrendering the policy.

3 Different Types

1. Indexed Universal Life Insurance

laptop screen with stock market on it
Indexed universal life insurance’s cash value is based on how well the stock market is doing.

Indexed universal life insurance’s cash value is linked to an index in the stock market. If the index is doing great, your cash value goes up. However, if the stock market drops, your cash value will drop, which will also have an impact on your premiums. Be aware that your insurance company also takes a share of your cash value. 

2. Variable Universal Life Insurance

With variable universal life insurance, you have the option to put your cash value into a mutual fund, which is essentially a pool of money that is managed by investors. Your cash value will be invested into different companies and, while this lowers your risk, you will also have to pay a lot in fees, which will take away from your earnings.

3. Guaranteed Universal Life Insurance

Choosing this option means your premiums will stay the same regardless of how well the stock index is doing. This is because the interest rates on your cash value are set when you purchase your policy. The only downside to this type of universal life insurance is that cash value will be a lot lower than with other types of universal life policies, because these policies are not designed to build cash value.

Just Know…

If you do not use your cash value, you will lose it, and it will revert back to your insurance company. Your family will only receive the death benefit, not the cash value that accrued over your lifetime. caucasian man holding a young toddler with a cap onPurchasing a life insurance policy means that your loved ones will be taken care of when you are no longer around. Universal life insurance is a great choice because it will last throughout your lifetime as long as you continue to pay your premiums, and it is very flexible. You can adjust your death benefit, your cash value earns interest, you can withdraw money or borrow from your policy’s cash value, and you have flexibility with premiums. You can choose to pay the minimum and let your cash value build up, and then, if you don’t want to lose your cash value, you can use it to pay your premiums and save more money. 

The best way to find the perfect policy for you and your family is to compare policies and companies. There are many different life insurance policies and life insurance companies to choose from, so consider using online tools, or speaking with an agent. We have provided the top insurance companies that offer universal life insurance policies below; each can give you hassle-free assistance and the most competitive rates in the nation. Always check multiple sites to make sure you have bargaining power and know the advantages of each company. Make sure a hard time isn’t made harder by a financial burden, check universal life insurance rates today.