In our post, Understanding Life Insurance, we mentioned Whole Life, Term Life, Universal Life and Annuities and we discussed the differences in Whole and Term policies. Today we’ll talk about the differences in Whole and Universal Life insurance products.
A Whole Life policy has a set death benefit and set premium which you pay for life or, in some cases, until the policy endows, at which time you’ll receive the full face amount in cash. EX: a 25,000 WL policy endows at the age of 100 – should the insured live to be 100, the company will give him/her $25,000 in cash and the policy will no longer be in force.
A Universal Life policy offers flexible death benefits, flexible premiums and differing cash value options that a traditional Whole Life product does not. It offers lower costs similar to a term life policy with a savings benefit traditional term policies lack.
One major difference to keep in mind between a Whole Life and Universal Life policy is the fact that the premiums can change on a UL compared to the WL. Whereas WL policy premiums stay the same throughout the life of the policy, a UL life’s premiums can go up as the insured gets older (much like a term policy). Many people on a fixed income face the possibility of losing their UL policy as the premiums rise. This is not the case with a WL policy.
Both Whole Life and Universal policies build cash value, however with flexible premiums, a Universal Life policy can build much better cash value. In turn, the CV can be borrowed against, surrendered completely or partially surrendered to where you get some money but still maintain a certain level of life insurance benefits. However, in both WL and UL, any unpaid loan will be deducted from the death benefits at time of insured’s demise.
Universal Life policies are often presented to people as an alternative to a 401K investment because of the death benefits they offer. However, this is not always a wise choice because, as mentioned, the UL premiums can go up so high that you either lose your insurance OR use up your cash value paying the premiums to keep that death benefit. At the end of the day, you could quite possibly end up with ZERO death benefits and ZERO cash!
That said, if you’re interested in a Universal Life policy due to the chances of higher cash value, some companies offer a Guaranteed Universal Life product – which has guaranteed death benefits and level premiums but still has the opportunity to build more cash value than a traditional WL policy.
When looking to protect your family and assets with an insurance policy, it is always wise to speak with a trusted insurance agent and/or financial advisor. We’d love to be of service to you in this area, so give us a call.
Until next time take care and remember….it’s your life and your money, spend both wisely!
Tommy Curtis and Staff
This material has been provided for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
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