Whole Life vs. Universal Life Insurance

Both whole and universal are designed to cover you for life. That means neither ends after a specific number of years like term life insurance would.

With whole life, most policies reach maturity at age 100. That means your cash value should match your death benefit when you become a centurion. If you live that long, you’ll get a pretty awesome birthday present: a lump sum payout of your death benefit that allows you to self insure.

Universal life works a bit differently. While it can cover you for your entire life, you can adjust when your policy matures depending on how much you fund your policy (a.k.a. how much you pay in premiums). The more you pay into your policy, the longer your coverage can last.

Whether you choose whole life or universal life, however, you won’t have to worry about outliving your policy.

In general, whole life is the most expensive type of life insurance because it includes guaranteed coverage (provided you pay your premiums). Based on the sample rates above, you can see that whole life may cost double or more what universal costs. But that’s not always the case.

How much you pay for universal life depends on your preference, to some extent. Some guaranteed universal life policies are nearly as inexpensive as term life. But if you choose indexed or variable universal coverage, you may end up paying a lot in premiums to keep your policy funded if your cash value doesn’t grow at the rate you expect.

Whole life insurance is a lot like Old Faithful, the famous geyser in Yellowstone National Park. Rangers and tourists alike can set their watch by when Old faithful erupts. When you visit, you’ll know exactly what to expect because it’s always the same.

Whole life is similar. Everything about your policy—the premiums, cash value accumulation, death benefit, and length of coverage—are all laid out in your contract. They won't change unless you alter the contract itself.

Universal life insurance is more like a geyser with a valve that you can turn whenever you want to adjust the size and shape of the eruption. During the life of your policy, you may be able to adjust your death benefit, cash value accumulation, and length of coverage—while changing up how much you pay in premiums.

This flexibility could mean your policy will continue to meet your coverage needs even if your life moves in unexpected directions. If you’re short on cash, for instance, you may be able to lower your premiums or skip a few payments.

Or if your kids move out and you pay off your house, and your beneficiaries wouldn't need a large payout anymore, you may be able reduce the death benefit.

But there are some choices you’ll need to make (and stick to) before you buy your universal life insurance policy. These choices include deciding between several types of universal policies:

• Straight universal life insurance: You get regular universal life with straightforward cash value growth.
• Guaranteed universal life insurance: Your coverage is guaranteed, provided you pay a minimum premium.
• Indexed universal life insurance: Your cash value growth is tied to (but not directly invested in) an index, such as the S&P 500.
• Variable universal life insurance: You may invest your cash value directly in the stock market.

Universal life insurance comes with a lot more options than whole life does. Unfortunately, universal life’s flexibility also comes with more complexity.

Neither universal life nor whole life is the most straightforward type of life insurance. Term life wears that crown. But among cash value life insurance, whole life takes the cake for simplicity. Unless you change your contract, your coverage, premiums, and cash accumulation are the same from the day you begin coverage until the day your beneficiaries collect.

With universal life, it’s different. Because it’s so flexible, and there are additional cash value accumulation options, your policy could have multiple interest rates that come into play depending on the market. And understanding how today’s premiums affect tomorrow’s coverage can be challenging.

If you’re considering universal life insurance, pore over the contract and work with an insurance agent to get clarity on how it all works in your specific policy.

Whole life insurance may come with more guarantees than universal life. With whole life, you won’t lose your coverage as long as you pay a consistent premium, and your cash value will grow every year at a specified rate. With universal life, your minimum premium and cash accumulation may vary.

Depending on which type of universal life policy you choose, however, your coverage may be at more risk. Policies that don’t guarantee a minimum cash value accumulation, for example, may not grow very quickly. These policies may require policy owners to chip in more for premiums to keep the policy funded or the policy could lapse.

Of course, both types of life insurance allow policyholders to take out loans or withdraw their cash value, although the latter can have tax consequences. And if you don’t return these funds to your policy before you die, your beneficiaries may not receive the full death benefit.

There’s no easy answer to which type of life insurance is better because it depends on your situation.

If you can afford the premiums and want straightforward, secure coverage for life, whole life insurance might be right for you. So check out the best whole life insurance companies.

If you want cheaper permanent coverage or more flexibility and don’t mind the complexity, then you might consider universal life. If that’s you, learn about the best universal life insurance companies.

But if you’re not sure you’ve found your match, don’t worry. You can talk to a trusted life insurance agent or compare quotes from multiple companies and review policy types to find the right coverage for you.