It’s relatively easy to differentiate between term and permanent life insurance, but when it comes to two main types of permanent life insurance – universal life insurance and whole life insurance – choosing the right option may be trickier. Keep reading to learn some of the main features of universal and whole life insurance, which can help you decide which one is the right match for you.
Permanent Life Insurance Basics
Universal life insurance and whole life insurance are two types of permanent life insurance (there are other types, but many people find themselves choosing between these two). Both types of policies offer lifelong coverage and a guaranteed death benefit so long as required premiums are paid. Both also build cash value over time. Once you’ve built up your cash value, you can borrow against it at any time for any reason. The guaranteed death benefit is ideal for leaving something to your family, friends, or even a charity close to your heart.
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Whole life insurance
With whole life insurance, your monthly premiums are fixed. This can make budgeting simpler and much more straightforward. With whole life insurance, your cash value is guaranteed to grow. In fact, it may grow at a higher rate with dividends, but never less than the guaranteed rate.
Universal life insurance
Universal life insurance also builds cash value that you can borrow against, but unlike whole life insurance, it gives you flexibility with the premiums you pay. You can decide if you want to pay higher or lower premiums (within certain limits) in a given year and whether to increase or decrease your death benefit for the year (also within certain limits). The ability to adjust your premiums can be a big help particularly if your income varies.
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Determining the right policy for you
Both whole life insurance and universal life insurance allow you to borrow from the policy’s cash value and won’t expire as long as you pay the required premiums.
Your financial circumstances and lifestyle will help determine which policy is right for you. For instance, someone with a steady income may prefer the security of whole life insurance, while a business owner may enjoy the flexibility of universal life insurance. It may also be a good idea to consult a financial advisor or talk to your insurance provider about which policy will work best for you.