- Whole Life versus Universal Life Insurance
- June 4, 2015
Life insurance is an essential financial tool that can protect the lives of your loved ones when you have passed away. While the decision to purchase life insurance may be easy, choosing between a whole life or a universal life policy can be extremely confusing.
As with any big decision, you will need to compare each option carefully while also evaluating your needs and your family’s future needs.
Whole life offers life insurance protection for the full duration of an individual’s life as long as premiums are paid. This type of policy also builds up a tax-sheltered account as you pay your fixed monthly premiums.
A whole life policy also has the potential to receive yearly, tax-free dividends from the insurance company that can be used for a variety of reasons:
· Left in the policy to accumulate more interest and ultimately increase the policy’s cash value and death benefit
· Used to pay the policy premium
· Cashed out as a check
Another unique feature is that you can access the cash value feature at any time without taxes or penalty in the form of a policy loan. This loan can be used to pay for any immediate financial need, such as college tuition, health-care expenses, purchasing a new home, etc.
As a result, you may end up paying higher premiums in the beginning compared to other type of life insurance policies. The level premiums, fixed death benefits and the attractive living benefits also make this policy quite expensive, especially in the early years.
Whole life is made to fulfill an individual’s long-term financial goals, which is why it is important to keep the policy in-force as long as you live. It you have the money and resources, it is encouraged to purchase whole life at a young age.
Universal Life, also known as “adjustable life insurance”, offers more flexibility compared to whole life insurance. You have the liberty to reduce or increase your death benefit and also to pay your premiums at any time and in any amount (subject to certain limits) after your first premium payment has been made.
If you want to increase the face value of your insurance coverage, you will need to pass a medical examination to qualify for this benefit. If you want to decrease the face value, you can do so without surrendering your policy.
When it comes to the death benefit, you have two options:
· Fixed amount of death benefit
· Increasing death benefit equal to the face value of your policy, plus your cash value amount
The benefit of universal life is that your insurance company discloses the entire cost of insurance to you, which gives you an idea of how the policy works.
On the other hand, the downside of universal life is the interest rate. If the policy performs well, there is a chance of potential growth in savings fund. However, if it performs poorly, you may end up paying higher premiums to get your cash value account going.
When buying any type of life insurance policy, the top priority should always be your family’s needs. Whole life insurance protects your beneficiaries in your absence and acts as an asset-accumulating tool, while universal life gives you full control of your policy and allows you to make changes along the way.
In the end, the decision comes down to what you want the life insurance policy to do for you and your family. Don’t be afraid to reach out to a qualified, licensed life insurance agent who can help you determine the appropriate policy.
- Category: Articles Library, Life Insurance, Whole Life
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