What to know about Universal and Whole Life Insurance

What to know about Universal and Whole Life Insurance. This article draws the great line on Whole vs Universal Life Insurance. You might have heard about whole life insurance and universal life insurance but don’t really know which is the best choice to make? Sorry.

What to know about Universal and Whole Life Insurance. This article is here to help you to decide by yourself as we are going to explain the two terms to the best understanding.

If you need lifelong life insurance coverage, you may be considering a permanent life insurance policy. Both whole and universal life insurance policies offer permanent coverage that lasts your entire life.

What is the difference between these policy types, and which type of coverage is best for your situation?

Just like with home and auto insurance, every person’s life situation and financial goals are unique. If you are considering universal vs whole life insurance, there are some key similarities and differences to take into account when choosing a permanent life insurance policy.

Universal Life Insurance And Whole Life Insurance

Stay focused. Before we talk about whole vs universal life insurance, we are going to talk about whole and universal life insurance starting by explaining each term for better understanding

Whole life insurance

Whole life insurance is a type of permanent life insurance that provides a death benefit to your beneficiary no matter how old you are when you die. The premium you get approved for when you initially sign up for whole life insurance is locked in for life and will never increase. Whole life insurance is payable for a specific length of time.

Some policies are paid up until age 99 or 100, while others come with higher premiums but only require premium payments for 10 or 20 years, called 10-pay or 20-pay whole life insurance policies.

This type of permanent life insurance also includes a cash value component. Part of your premium payments go into a savings account which builds, tax-deferred, in the policy over time.

Once you meet a minimum required cash value, you can choose to borrow some as a loan or withdraw it, which may have tax implications.

Though it’s not guaranteed, the cash value could pay out dividends, which you can choose to keep or reinvest into the policy to allow the cash value to grow, reduce your premiums or pay for more coverage. If you cancel or surrender the whole life policy, you are eligible to keep the cash value in the policy, minus any fees set by the life insurance company.

Universal life insurance

Universal life insurance is also a type of permanent life insurance. Like whole life, universal life insurance offers permanent coverage and the ability to grow cash value over time. When comparing whole vs universal life insurance, universal life insurance has more flexibility with premium payments and death benefits.

When applying for universal life insurance, you have more options vs whole life insurance. You can choose a level premium and death benefit or an adjustable plan, which allows you to raise or lower premiums and death benefit, as long as certain minimums are met first. Once cash value has grown in the policy, you can also choose to use it to pay premiums. Universal life insurance is also called adjustable life insurance because of the flexibility it offers. You have the liberty to reduce or increase your death benefit and pay your premiums at any time in any amount (subject to certain limits) once there is money in the account.

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Like whole life, universal life insurance policies have guaranteed minimum cash value growth potential set by the insurance company. Others, called index universal life, are tied to a stock market index, which can allow cash value to grow faster but also runs the risk of losing value. Some companies have loss prevention built in, where you will not lose money, but you may not gain any value with indexed universal life insurance.

Universal life insurance And Whole Life Insurance

Below are some of the underlying factors to take into consideration when comparing whole vs universal life insurance:

When comparing whole vs universal life insurance, there are some similarities. Both offer permanent life insurance coverage with a cash value portion of the policy you can borrow against or withdraw.

If you cancel either life insurance policy, you will be refunded a portion of the cash value after any charges or fees are paid.

However, there are some key differences between whole vs universal life insurance. With whole life, you are locked into a set premium and death benefit amount.

Universal life insurance provides flexibility in both the death benefit and premiums, as long as certain criteria are met first. You may be able to grow cash value faster in universal life vs whole life, but it is not guaranteed.

How Universal Life Insurance Works

When you make a payment to your universal life insurance plan, part of it goes into an investment account, and any interest accrued is credited to your account. The interest you earn grows on a tax-deferred basis, increasing your cash value.5

You can adjust the death benefit when needed, increasing it (often subject to a medical exam) if your circumstances change, or lowering it to reduce premiums.6 Alternatively, you can use your cash value to pay premiums as long as there is enough money in that account.

How do I choose what is right for me?

Finding the right type of permanent life insurance comes down to your financial situation and family needs. When choosing between whole life and universal life, consider how important flexibility is to your needs.

It is also important to compare life insurance companies and the types of policies they offer, including fees assessed, to find the best type of life insurance company and policy to protect your family’s lifestyle.

Frequently asked questions on Whole vs Universal Life Insurance
Here are some of the FAQs on whole vs universal life insurance

What is the best life insurance company?

The best life insurance company is one that has the right life insurance policy for your needs. Consider how much coverage you need, costs based on your age and health, and what you can afford to keep paying into for as long as the policy requires it.

Is whole life or universal life insurance better?

One is not necessarily better than the other, it comes down to your needs, risk tolerance and desire for flexibility. The cost of life insurance is also a factor to think about, which is why you should compare several policy options and insurance companies to find the right fit.

Although life insurance rates don’t vary as much between companies as auto or home premiums do, you may want to consider a few different types of coverage to find the right option for you.

Should I cash out my universal life insurance policy?

With a policy that builds cash value over time, it can be tempting to cancel the policy and take the cash value. If you no longer need life insurance, cashing out your universal life insurance policy is an option. But if you still have a need for life insurance, consider taking a loan against the cash value instead if you just need the cash.

This way, the life insurance stays in force and you get the cash infusion you need now. Reviewing any actions with an agent is an important step, as life insurance loans can be complex.

Hope we’ve been able to provide your need for reading this content on whole vs universal life insurance? Let’s hear from you in comments

 

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