Whole life and universal life are both types of permanent life insurance. This means that they provide you with coverage for your entire life, not just a time period. In this article, we will compare whole life and universal life to help you determine if either is a good fit for you.
Whole Life Insurance
Whole life insurance allows you to combine insurance coverage and savings. How is this accomplished? Portions of your premiums are placed into an interest producing savings or investment account. This creates a cash value that grows on a tax-deferred basis. Many people like whole life policies because of their guaranteed cash value. It can be utilized before death if ever necessary.
Another benefit of whole life is that policyholders can receive dividends. You can choose to receive these dividends in cash, have them reduce your premiums, or use them to buy additional insurance coverage. The downfall of whole life is the cost, these policies have very high premiums.
Universal Life Insurance
Universal life insurance gives you coverage for your entire life with added flexibility. When you pay insurance premiums, part of your payment goes into an investment account. Tax-deferred interest will accrue in this account, allowing your cash value to grow.
The biggest benefit of universal life is it gives you the ability to adjust your death benefit. If your circumstances change, and you require more coverage, you can increase your policy’s death benefit. However, it is important to note that some increase requests may subject you to a medical exam. Additionally, you can decrease your death benefit to reduce your premiums. Universal life policies also allow you to use the cash value to pay your premium.
There are downsides to universal life. First, since your cash value is in an investment account if the market does not perform your cash value will not increase. Second, there are substantial fees if you surrender your policy or make withdrawals from the cash value.
Choosing Between Whole Life and Universal Life
If you are looking for a permanent life insurance product, most people choose between whole life and universal life. You will need to decide if you prefer the stability of whole life or the flexibility of universal life. If you are unsure which is best for your situation, meet with a qualified insurance agent who can help you weigh your options.
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