When you hear the phrase “permanent life insurance” what comes to mind?
Generally speaking, there are two primary types of permanent life insurance coverage:
- Whole life
- Universal life
In some ways, these two types of coverage appear to be identical. However, as you dig into the finer details, you’ll find that there are many differentiating factors.
Let’s start here: since these are both considered permanent life insurance policies, they are designed to remain active during your entire life. Unlike term life insurance, neither one of these will expire after a particular period of time (such as 15 or 20 years).
With that out of the way, it’s time to learn more about each type of policy. Here are two points to get started:
- Whole life insurance has a fixed premium (and death benefit), allowing you to pay the same amount every year. Also, this type of policy can accumulate cash value.
- Universal life insurance has a flexible premium, meaning that you have the opportunity to adjust how much you pay by the year. For example, you can access the cash value as a means of lowering your premium payment.
The Benefits of Both
By now, you should be getting closer to understanding what type of permanent life insurance is best for you. Now, we need to talk about the benefits of both. Let’s start with whole life insurance:
- Opportunity to pay the same premium, year in and year out.
- Ability to take a loan against the policy.
- Tax-deferred cash value growth.
Here are some of the primary benefits of universal life insurance:
- With cash value, you may be in position to lower your premium payment or skip a payment altogether.
- With some companies and policies, you can increase or decrease your death benefit as you see fit.
- You can borrow against the cash value of the policy.
Are these Identical?
Are you beginning to get the feeling that whole life insurance and universal life insurance are one in the same? It’s easy to see why you may think this, but there are some key differences to keep in mind as you compare policies:
- Universal life insurance has more flexibility in regards to using the cash value to lower your premium or skip payments.
- Whole life insurance has level premiums, a set death benefit, and greater potential for growth.
These two differences, along with the benefits and other details listed above, go a long way in showing that these types of policies are not the same.
How to Make a Decision
Only you know what type of life insurance is best for you. Only you know how much you can afford to spend and what you need to get in return.
Making a decision is based on many factors, including but not limited to:
- Your preference based on the pros and cons of each policy type.
- Your financial approach and budget.
- The goals that you have set for yourself and your family.
Here are some questions to answer that can help you make a decision:
- How much money are you able to spend on life insurance?
- Are you interested in a policy that remains unchanged from the day you buy until the day you pass on?
Which One is Best?
There is no denying the fact that whole life insurance is more popular than universal life insurance. This isn’t to say that a universal policy provides no benefits, but this type of coverage is not nearly as common.
Most consumers find that whole life insurance is easier to purchase, as more companies offer this type of policy. Along with this, they enjoy the fact that they can obtain coverage with a death benefit and premium that remains the same. Furthermore, the ability to earn cash on an annual basis helps make these policies even more appealing.
With all that being said, whole life insurance is typically the better choice for most consumers.