Universal Life Insurance or Whole Life Insurance
Permanent insurance policies are designed and priced for you to keep over a long period of time. If you don’t intend to keep the policy for the rest of your life, this may be the wrong type of insurance for you. If so, it may be better to consider term life insurance or return of premium insurance.
The two main types of permanent life insurance are whole life and universal life insurance. These have a feature known as cash value or cash surrender value.
Universal life (or whole life) covers an event that’s certain to happen; one’s death, while term covers you for the possibility of you dying during the term period.
The Difference between Whole Life Insurance and Universal Life Insurance
Here’s the difference in a nutshell – whole life guarantees the death benefit for life, guarantees the cash value and guarantees the premium – period.
Universal life insurance assumes an interest rate and the cost of insurance and comes up with a projected premium. If the insurance companies’ projections on their universal life policy do not come through, then you may have to come up with higher premiums later, have lower than expected cash values or even lose the policy.
However, a recent development in the insurance marketplace is that you can now get universal life insurance and guarantee that the policy will last for a lifetime. It may lose its cash value but the insurance amount can be guaranteed for life. This type of policy is known as Guaranteed Universal Life Insurance or Universal Life Insurance with lapse protection.
Which One is Right for You?
This depends on several factor, the first being budget. Whole life insurance is considerably more expensive than universal life, but if you can afford it and you like the idea of building up cash value (with significant tax benefits) in the policy, this would be a good choice for you. If you are more interested in a lifetime death benefit and don’t care about building cash value in the policy, the guaranteed universal life option might be best for you.