Here are the main differences between whole life insurance and universal life insurance:
• Premiums – Whole life insurance has fixed premiums for the life of the policy. Universal life insurance has flexible premiums that you can adjust up or down over time.
• Cash value growth – Whole life insurance has a fixed & guaranteed cash value that grows at a set interest rate. Universal life insurance has a variable cash value that depends on the performance of the underlying investments.
• Investments – Whole life insurance cash value grows at a set interest rate, usually low and fixed. Universal life insurance cash value is invested in separate accounts that track stocks, bonds and other investments. This can lead to higher potential growth but also more risk.
• Policy loans – Both types of policies allow you to take loans against the cash value. However, universal life insurance typically offers more flexible borrowing options.
• Death benefit – The death benefit for whole life insurance is fixed for life. The death benefit for universal life insurance depends on the cash value and can vary over time. You have to maintain sufficient funds to cover the cost of insurance.
• Cost – Whole life insurance premiums tend to be lower initially but increase over time. Universal life insurance premiums are higher up front but have the flexibility to decrease later.
• Suitability – Whole life insurance is best for those who want certainty of coverage and cash value growth. Universal life insurance gives more flexibility but requires active management to avoid lapsing the policy.
In summary, whole life insurance is simpler and provides fixed benefits for life while universal life insurance offers more investment potential, flexibility and options at the cost of more complexity and risk of lapsing the policy. It depends on your priorities, lifestyle and financial needs.
