Life Insurance: Universal vs. Term vs. Whole

Universal life, a form of permanent life insurance provides policyholders with flexibility on paying premiums, a cash savings component, and a death benefit. Premium costs may change with interest rates and as the policyholder grows older.

Universal life insurance allows you to borrow against or cash in their savings portion, which grows, tax-deferred over your lifetime. Term life provides coverage, often through an employer, for a set number of years, generally, 20 or 30, and expires once the term is up. Term life is usually affordable, with low premiums, but there is not a cash component to borrow from or cash in, and the death benefit is null and void if you die after the term is up.

Whole life insurance is also a form of permanent life insurance, with a cash value savings component. Another important difference between universal and whole life insurance is that universal life insurance has more flexibility in where you can invest your policy’s cash value account. Whole life insurance premiums are locked in for the life of the policy, whereas universal premiums are flexible.

Both whole life and universal life are forms of permanent life insurance and provide a cash value savings component that policyholders may borrow from or cash out. Whole life offers fixed premiums, universal premiums, may start out lower, but they are flexible and may increase as you age. Depending on the amount of coverage and flexibility you want in a permanent policy, either form may be a good choice, depending on your situation.

Whole life insurance is more stable because the death benefit will never go down if you pay our premiums, which are fixed monthly amounts. Universal life insurance offers more flexibility, but your death benefit is not guaranteed. If you borrow too much against the policy, the benefit will decrease, but you can design your coverage for many years or your lifetime. You can increase or decrease your death benefit and the amount you spend on premiums.

You can sell your universal life insurance policy, or you can liquidate the cash value component and cancel the policy, but you will have to pay a surrender fee.