Whole Life or Universal Life - Which Type of Permanent Life Insurance Should You Buy?

What Is Universal Life?

Universal Life Insurance was developed in the mid 1980s as the insurance industry's answer to a rising interest rate environment. Universal Life combines term life insurance with an cash value component designed to create level premiums throughout the life of the policyholder.

What Is Whole Life?

Whole Life Insurance has been around since the inception of life insurance. Most competitive whole life contracts provide a guaranteed cash value along with a non-guaranteed dividend. These two forms of equity building will typically generate significant cash values in the later years of the policy.

Advantages of Universal Life

The primary advantage of UL is its flexibility. The owner of the policy can change the premium amount, change the death benefit, change the frequency of premiums, make additional premium deposits, withdraw or loan funds from the account. However, what I've seen over my 20 years, is that policyholders have few resources to guide them when utilizing the flexibility of the contract. Often, the policies themselves become worthless because the policyholder didn't understand the long term consequences of making adjustments dealing with things such as premium amounts.

Advantages of Whole Life

Whole life insurance provides the owner and it's beneficiaries piece of mind that the policy will be there when they need it. With the underlying guarantees of a whole life insurance contract, as long as the owner makes his/her premium payments, and the company is solvent, the contract is guaranteed to pay the death benefit.

All whole life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company.

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