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Policy Types

Whole life vs. universal life insurance

Many people can't explain the difference between whole and universal life insurance. We want you to understand, so that you can pick the policy that is right for you.

Understand permanent life insurance

Two common types of permanent* life insurance policies are whole life and universal life. Differentiating the key aspects between whole life and universal life insurance can sometimes be difficult. Since both provide a financial benefit to your beneficiaries when you die, how do you decide which policy is the best choice for you? For example, do they both offer cash value that may increase over time? Is one typically more expensive than the other? What are the main differences between whole life insurance and universal life insurance?

If you've been looking at buying a permanent life insurance policy, chances are you've asked the same questions. We're hoping the following information will provide you with some basic answers so you have a better understanding of the differences between whole life and universal life insurance.

Whole and Universal: How are they alike?

Whole life and universal life insurance are both considered permanent policies. That means they're designed to last your entire life and generally won't expire after a certain period of 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.  

What is cash value life insurance?

Cash value life insurance is a type of permanent life insurance in which a portion of the policy may build value from interest earnings or grow in investments. The cash value of that policy may be made available to the policyholder to withdraw or borrow against. This provides the policyholder with a living benefit and access to cash outside of the death benefit. However, withdrawals and unpaid loans will reduce the amount your beneficiary will receive.  

Cash value life insurance allows you to use cash from your life insurance policy while you are still alive. This type of policy may also help ensure you can meet premium payments to keep your life insurance policy in force when you fall on hard times because cash value accrued in the policy may be used to pay your premiums. 

What is whole life insurance?

Whole life insurance policies have a fixed premium, meaning you pay the same amount each and every year for your coverage. Much like universal life insurance, whole life has the potential to accumulate cash value over time, creating an amount that you may be able to borrow against.

Why should you consider buying whole life insurance? 

A whole life insurance policy can be described as providing life insurance protection with an accumulation feature, and might be a good choice if you want a policy with:

  • Level premiums that stay the same for the life of the policy
  • Cash value accumulation that you can use while you're still alive
  • Protection that you can't outlive as long as your required premium payments are maintained

What is universal life insurance?

Universal life insurance policies offer flexible premiums that may allow you to adjust how much you'll pay each year by accessing some of the policy's cash value (though you will need to pay a minimum required amount or the policy will lapse). Depending on your policy's potential cash value, it may be used for a premium payment, or be left alone with the potential to accumulate value over time.

Potential growth in a universal life policy will vary based on the specifics of your individual policy, as well as other factors. When you buy a policy, the issuing insurance company establishes a minimum interest crediting rate as outlined in your contract. However, if the insurer's portfolio earns more than the minimum interest rate, the company may credit the excess interest to your policy. This is why universal life policies have the potential to earn more than a whole life policy some years, while in others they can earn less.

Why should you consider buying universal life insurance?

A universal life insurance policy might be a good choice if you want:

  • The flexibility to adjust your premiums and coverage amounts**
  • Cash value that you may be able to borrow from while you're still alive
  • Permanent* life insurance protection and access to cash values

The difference between whole life and universal life insurance

Universal life insurance benefits

Universal life can provide you with a variety of different payment options, including the flexibility of changing your death benefit, as well as the potential to accumulate cash value over time. Here's how:

  • Since there is a cash value component, you may be able to skip premium payments as long as the cash value is enough to cover your required expenses for that month
  • Some policies may allow you to increase or decrease the death benefit to match your particular circumstances**
  • In many cases you may borrow against the cash value that may have accumulated in the policy
  • The interest that you may have earned over time accumulates tax-deferred

Whole life insurance benefits

Whole life policies offer you a fixed level premium that won't increase, the potential to accumulate cash value over time, and a fixed death benefit for the life of the policy. In addition:

  • Any cash value growth is tax-deferred (as it is with universal life)
  • Whole life may allow you to take loans against the policy
  • Whole life offers the ease of budgeting for a regular and consistent premium payment every month

Understanding key differences

The flexibility that a universal life policy provides is a key differentiator over whole life. Furthermore, interest rates over time can affect the performance of a universal life policy.

Another key difference would be how the interest is paid. While the interest paid on universal life insurance can be subject to prevailing interest rate environments, interest on a whole life insurance policy is fixed. 

Which is better: universal or whole life?

The answer to this question depends on your needs and goals for your policy. Some people may prefer the set death benefit, level premiums, and the potential for growth of a whole life policy. However, for those who would prefer to have more flexibility and options when it comes to their permanent life insurance, then universal life might be the better choice.

Whole life Universal life 
Fixed premium  Flexible premium 
Offers cash value to use while you're still living 

 May allow you to increase or decrease death benefit

and offers cash value potential

 Interest is fixed Interest rates can change over time 

Finding the right policy for you

Although whole and universal life policies have their own unique features and benefits, they both focus on providing your loved ones with the money they'll need when you die. By working with a qualified life insurance agent or company representative, you'll be able to select the policy that best meets your individual needs, budget, and financial goals. You can also get a free online term life quote now.


*Provided required premium payments are timely made.

**Increases may be subject to additional underwriting.



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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective or its subsidiaries.

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