Whole Life Insurance or Universal Life Insurance – which one is better? This is a question that plagues the minds of many people who are looking to purchase a whole life or universal life insurance policy. There are a lot of questions that come to mind when purchasing life insurance, most of which involve the cost of the premiums, the advantages to be gained, the interest rates and the payouts. Let’s take a look at the five things you need to know before you opt for either a Whole Life policy or a Universal Life Insurance policy.
What is a Whole Life Insurance Policy?
We hear the term ‘whole life’ bandied around a lot, especially when we’re thinking of getting life insurance. But what exactly is a Whole Life Insurance Policy and how does it work? With whole life insurance policies, you pay fixed premiums to your insurance company in exchange of a specified sum that will be paid out to your beneficiaries when you die. How much the earning will be at the time of death is an amount set by the life insurance policy, and depends of the overall ROI (Return on Investment). Also, if your earnings for the life insurance company are over and above the required amount for the death benefit, then this extra goes into your policy’s cash reserve, which means you can use it to either pay premiums, to borrow against as a loan or to have it accumulate for you so can access it upon retirement.
What is a Universal Life Insurance Policy?
Unlike a Whole Life policy, a Universal Life Policy gives you a lot of flexibility in that it allows you to set the premium amount and the death benefit yourself. This means you can pay lower premiums and save quite a bit too. With Universal Life insurance policies, the premiums are set depending on the interest rates which are generated monthly. The higher the rates, the more the cash accumulation.
What are the Advantages of the Whole Life?
Whole Life insurance policies have quite a few advantages, with some of the biggest ones being the fact that such insurance policies guarantee an accumulation of cash value, ensuring that policy holders pay fixed premiums per month which they have already budgeted for and ensuring a payout at death.
What are the Advantages of the Universal Life over the Whole Life?
When it comes to Universal Life Insurance, one of the biggest advantages is that there is flexibility not only in payments, but also in the setting of the death benefit and the savings. At higher interest rates, policy holders pay lower premiums, which is quite an advantage.
Choosing the Right Insurance Policy
Now that you’ve looked at both types of policies, it’s time to decide whether to purchase a whole life or universal life insurance policy. Both have their advantages, but it’s up to you to decide which is a better fit for you and your financial situation. Make the right choice, and you’ll find yourself set up both for retirement and for what comes next.
About the author: Jennifer Brown is an insurance expert who specializes in life insurance options for her clients. She’s based on Monhegan Island, Maine.