Whole Life Insurance vs. Universal Life Insurance

By Compuquotes Team on March 26th, 2008

Whole life insurance and universal life insurance are similar in some ways. Universal life insurance was born from the premise of whole life insurance. People were looking to purchase whole life insurance that was a little more flexible and the idea for universal life insurance was born.

One of the advantages of universal life insurance is the flexibility compared to whole life insurance as well as the higher likelihood for elevated cash growth if the market outperforms the insurer's general account.

The flexibility in universal life insurance is prominent in two ways: the death benefit and the premium payments are both flexible.

The death benefit can be increased if the insured is suitable or decreased without giving up the policy or starting a new one, which is what would be required if you had a whole life insurance policy.

The premium payments can be made in a wide range with universal life insurance from a small minimum amount to a maximum amount allowed by the IRS.

The big difference between universal life insurance and whole life insurance is that with universal life insurance, the insurance company gives some of the risk of maintaining the death benefit to the person who is insured. With a whole life insurance policy, as long as you make the premium payments, the death benefit is guaranteed to be paid out when the insured person passes away. With universal life insurance, if the cash value of the policy and the premium payments aren't enough to cover the cost of the insurance, the death benefit will lapse and no longer be available.

Whole life insurance also hides the expenses, charges and costs of insurance from the insured party, where as universal life insurance discloses this information to the policy holder.

Universal life insurance also allows flexibility to the exit strategies from the insurance contract as well as a 0 interest loan which provide the insured with access to the growth inside the policy income tax free for the time being.

Universal life insurance was created from the ideals of whole life insurance but catering to the whims of people more so than whole life can. By increasing the flexibility of the insurance policy, universal life insurance policies are growing in popularity and demand with some people.

However, there are still people who want the strict controls that whole life insurance have in place, with less flexibility that makes them stick to a certain schedule.

There is a degree of flexibility in whole life insurance but mainly only within the seven types of policies that are available, as previously discussed in this article. Some whole life insurance policies offer some flexibility to premium payments, while others do not.

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