Whole and universal life insurance are two different types of permanent life policies, which means they’re designed to stay in force for the insured’s entire life and they come with a cash value account in addition to a death benefit. Whole and universal life policies are generally much more expensive than term life insurance policies, since they don’t expire and the insurance company has an almost certain probability of paying out the death benefit as long as premiums are paid. While whole and universal life are both classified as a permanent policy, they differ in important ways. Show
The main difference between whole and universal life insurance is that universal life policies offer greater choice and flexibility when it comes to investing the money in the policy’s cash value account, deciding premium payments and choosing death benefit amounts. Whole and universal policies are nuanced, so you may want to research each type carefully to decide which option is right for you. Whole life vs. universal lifeWhole and universal life policies have certain similarities. Both policies offer permanent life insurance coverage with a cash value portion that you can borrow against, use to pay premiums or withdraw. If you cancel either life insurance policy, you will typically be refunded a portion of the cash value up to the amount of premiums paid in after any charges or fees are paid. With both policies, the money in the cash value account can usually be invested to earn returns and/or interest. However, there are some key differences between whole life vs universal life. With a whole life policy, policyholders are locked into a set premium and death benefit amount. Universal life policies, on the other hand, typically allow policyholders to adjust the amount they pay in premiums and the amount of their death benefit, as long as certain criteria are met. In addition, universal life cash value accounts are typically higher risk and higher reward than whole life policies. With whole life insurance policies, dividends from your cash value account investments are usually guaranteed but capped, which limits the amount of returns a policyholder can make. Universal life cash value accounts typically do not cap the amount of returns a policyholder can make unless it is a fixed product, but do not guarantee returns either. In this way, it’s possible for universal life policyholders to either gain or lose money on their cash value accounts. Pros and cons of whole life insurance
Pros and cons of universal life insurance
An important step of the research process is understanding each product line in greater depth. Learning more about whole and universal life insurance in the sections below may help you make an informed decision. Whole life insuranceWhole life is a type of permanent life insurance that provides a death benefit to your beneficiary for your entire life in most circumstances. The premium you get approved for when you initially sign up for whole life insurance is locked in for life in most circumstances and will never increase. This type of permanent life insurance also includes a cash value component. Part of your premium payments go into this cash value account which builds, tax-deferred, in the policy over time. Once you meet a minimum required cash value, you can choose to borrow some as a loan or withdraw it, which may have tax implications. Though it’s not guaranteed, the cash value could pay out dividends, which you can choose to keep or reinvest into the policy to allow the cash value component to grow, reduce your premiums or pay for more coverage. If you cancel or surrender the whole life policy, you are eligible to keep the cash value in the policy, up to the limits of premiums you’ve paid in, minus any fees set by the life insurance company. Universal life insuranceUniversal life insurance is also a type of permanent life insurance. Like whole life, universal life offers permanent coverage (in most circumstances) and the ability to grow cash value over time. When comparing whole life versus universal life, universal life insurance has more flexibility with premium payments and death benefits. When applying for universal life insurance, you have more options than with whole life insurance. You can choose a level premium and death benefit or an adjustable plan, which allows you to raise or lower premiums and death benefit, as long as certain minimums are met first. Once cash value has grown in the policy, you can also choose to use it to pay premiums. Like whole life, universal life insurance policies have guaranteed minimum cash value growth potential set by the insurance company. Others, called index universal life, are tied to a stock market index, which can allow cash value to grow faster but also runs the risk of losing value. Some companies have loss prevention built in, where you will not lose money, but your return is often limited to a certain annual percentage and you may not gain any value with indexed universal life insurance. How do I choose between whole life and universal life?When choosing between whole and universal life, you may want to focus on the key differences between these life insurance policies. When it comes to the cash value account, would you rather have the stability of guaranteed returns with whole life insurance? Or would you prefer the higher risk, higher reward aspect of universal life cash value accounts which may generate much higher or lower returns? Would you like your policy to maintain fixed premiums and death benefit amounts as with whole life, or would you prefer the flexibility of changing your premium and death benefit amounts as with universal life? A certified financial planner or other qualified financial advisor may be able to help you decide which of these products is right for you. Once you’ve decided on whole or universal life, an independent insurance agent can help you choose a life insurance provider. Frequently asked questionsWhich policy feature makes a universal life policy different from a whole life policy quizlet?Which policy feature makes a universal life policy different from a whole life policy? "A flexible premium schedule". The policy feature that makes universal life different from whole life insurance policies is its flexible premium schedule.
How does whole life differ from universal life insurance quizlet?There are two main types of permanent life insurance: Whole life insurance - Caters to long-term goals by offering consumers consistent premiums and guaranteed cash value accumulation. Universal life insurance - Gives consumers flexibility in the premium payments, death benefits and the savings element of their policy.
What characteristic generally makes universal life insurance policies more attractive than other forms of life insurance?One of the most attractive features of universal life insurance is the ability to choose when and how much premium you pay, as long as payments meet the minimum amount required to keep the policy active and the IRS life insurance guidelines on the maximum amount of excess premium payments you can make.
What is the most important feature of universal life insurance?Universal life insurance offers lifelong coverage, provides flexibility when it comes to paying premiums and choices for how the policy's cash value is invested. A standard universal life insurance policy's cash value grows according to the performance of the insurer's portfolio and can be used to pay premiums.
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