What Is Universal Life Insurance Vs Whole Life

Both whole life and universal life insurance are considered permanent insurance policies. That means they are constructed to last your entire life and will not expire after a specific time as long as required premiums are paid. They both have the potential to accumulate cash value over time that you may be able to borrow against tax-free for any reason. Because of this feature, premiums may be higher than term insurance.

What Is Universal Life Insurance And How Does It Work

How Does Universal Life Insurance Work? With universal life insurance, you pay a monthly fee that splits into two parts: One covers life insurance and the other goes into savings and investment. It's meant to be more flexible allowing you, the policy holder, to choose how much premium you pay within a certain range

Is Universal Life Insurance Worth It

A universal life insurance policy can be expensive. For the majority of people, purchasing a term life insurance policy and investing the difference in an IRA, 401(k), or traditional investments will provide greater returns for a lower cost. But for those individuals in a high tax bracket, a universal life insurance policy can offer a tax-deferred asset accumulation option that also protects their loved ones' financial security. 

Speaking to a financial advisor is the best way to determine whether a universal life insurance policy fits your financial plan.

What Is Universal Life Insurance Vs Whole Life

Consider buying universal life insurance if …

  • You are looking to protect your assets or estate.
  • If you want to protect a large estate or provide for your children or grandchildren, universal life insurance can offer a solid inheritance.
  • You need flexibility with payments.
  • Maybe your income fluctuates or you have money tied up in other investments. If you can not commit to paying a fixed premium each month, this policy’s flexibility feature is very attractive.
  • You want to access the money in your policy.
  • If you’re planning to buy a home, get married or apply for a loan, a universal life policy might be a good fit. Once you have increased up a substantial cash value, you’ll be able to borrow against your policy.
  • You’re treating life insurance as an investment.
  • If you want to invest in your life insurance to build on your cash value, universal life can give you a return on this investment. However, the premiums can be high and there is risk.

Consider buying term life insurance if …

  • You have a budget.
  • The least costly type of life insurance is term. The lower your premiums will be the younger and healthier you are.
  • Your needs are short-term.
  • If you only want coverage for the years that you’re paying the bills, this coverage can offer your family financial security. Get coverage to pay the mortgage, car payment and get your kids off to college.
  • Your circumstances may change
  • You can reevaluate your policy with term life insurance, as you near its expiration date. That means that if life changes, you can adjust your next policy to reflect that.
  • A simple life insurance policy has your interest
  • Term life is pretty simple, you pay your premiums and get a payout if you die. No need to worry about fluctuating premiums or investments

Universal Life Insurance Calculator

Life insurance is often considerably less than people think. Many people overestimate the cost of a term life insurance policy more than 3x the actual cost, according to a 2020 study LIMRA and Life Happens. Several factors determine the cost of your policy, including:

  • Age : Life insurance is cheaper when you’re younger, and premiums increase 4.5-9% every year you don’t buy
  • Health : Any health conditions or unhealthy habits like smoking make life insurance more expensive
  • Coverage amount : The bigger the death benefit you select, the higher your premiums
  • Term : A 30-year policy costs approximately 23% more than a 20-year term policy on average

Our calculator uses all these factors in determining the cost of the universal life policy. So go to Woody’s Insurance to find your best quote.

Universal Life Insurance Example

For example, universal life insurance pays a monthly fee divided into two parts: One covers life insurance, and the other goes into savings and investment. 

 It is designed to be more flexible allowing you, the policyholder, to choose how much premium you pay within a specific range. The minimum amount is set insurance cost, which includes your death benefit and administrative fees. 

Anything you pay over and above this premium is added to your cash value, which is guaranteed to grow according to the insurance company's minimum annual interest rate (though it can grow faster depending on how well the market is doing). 

  • Many individuals choose to pay the maximum premium possible, set the IRS, in the early years to build a more significant cash value (and use that cash to cover premiums later in life). But this is a high-risk move since the cost of insurance will increase the older you get! The question is, will you have enough cash value to cover it?