Whole Life Vs. Universal Life Insurance

A life insurance policy can help ensure your loved ones will not struggle with money issues if you die. But with so many life insurance options, choosing the right type of policy can seem challenging.

The more you know about life insurance options, the better equipped you are to choose the best life insurance.

One choice you may face when buying life insurance is whole life vs. universal life insurance. What are these two types of life insurance, and how can you discover which policy is right for you?

Whole life and universal life are two types of permanent life insurance policies.

Permanent life insurance remains in force as long as you pay premiums and it builds cash value over time.

That’s in contrast to term life insurance, which has steady rates for a set period (such as 20 years) and then expires. You can renew for a higher premium each year after that, but the higher rates can quickly become unaffordable. In addition, term life insurance does not build cash value.

Although whole life and universal life are both types of permanent life insurance, there are key differences between them.

Main differences between whole life vs. universal life insurance

Whole life insurance Universal life insurance
Fixed premiums Flexible premiums, within limits
Guaranteed cash value growth based on a fixed interest rate Different universal life policy options for how cash value will grow
Fixed death benefit Flexible death benefit, within limits
High premiums Potential for low premiums with a product such as guaranteed universal life insurance

With whole life insurance, neither your premiums nor your death benefit ever changes. The cash value within a whole life insurance policy builds at a fixed rate.

On the other hand, universal life insurance allows you to adjust both your premiums and the death benefit to fit your needs better. This type of policy can also grow cash value. The rate of growth depends on the type of universal life insurance you buy:

  • Guaranteed universal life insurance: Cash value growth may be minimal, but this provides a lower-cost way to secure lifelong coverage.
  • Indexed universal life insurance: Cash value growth is tied to a specific index, such as the S&P 500.
  • Variable universal life insurance: You choose investment sub-accounts and your cash value gains depend on investment performance.

Which Costs More: Whole Life or Universal Life Insurance?

Whole life insurance costs more than universal life because of all its guarantees. As a general rule, you will pay about twice as much for whole life vs. universal life insurance.

Here’s an example of what we found by averaging monthly whole life and universal life insurance premiums for men and women in good health who don’t use tobacco.

Average rates for whole life vs. universal life insurance


Whole life (monthly rates) Universal life (monthly rates)
Female age 30, $250,000 $184.95 $96.44
Female age 40, $250,000 $274.64 $139.92
Female age 50, $250,000 $403.09 $204.68
Male age 30, $250,000 $211.31 $104.51
Male age 40, $250,000 $303.23 $151.17
Male age 50, $250,000 $435.02 $221.92
Source: Forbes Advisor research. Average is based on the three lowest quotes we found online for nonsmokers of average height and weight.

Why does whole life cost so much more than universal life insurance? Because the premium payment amount, death benefit and growth of your cash value are guaranteed not to change.

“Whole life premiums are usually higher than universal life premiums to cover the embedded guarantees,” says Amanda Kuhl Sarrubbo, vice president and actuary, head of life products at New York Life.

The cost of whole life insurance does not change over the years. You will pay the same amount throughout the life of the policy. In addition, the death benefit amount won’t change.

Sarrubbo adds that with whole life insurance, you are typically eligible to receive dividend payments if your insurer is a mutual company.

On the other hand, with universal life, premium amounts can change. Unlike whole life—where the premiums are fixed—you can make a minimum payment toward a universal life policy each month, which can help keep premiums more affordable.

You also can adjust the death benefit—either lower or higher—in a universal life policy over time. If you increase the benefit, expect to pay a higher premium for that privilege.

Whole Life Vs. Universal Life Insurance: Which is Right For You?

It may be helpful to sit down with a financial advisor to map out a personal financial plan. Then you can better see what type of life insurance fits in with your goals. It may turn out that a simple term life insurance policy is all that you need.

Generally, those who value stability and guarantees might be more attracted to a whole life insurance policy. You know precisely how much of a death benefit your loved ones will receive, and your premium will not change for as long as you have the policy.

A whole life policy also steadily builds cash value that you can tap into before death if needed. And mutual life insurance companies usually pay dividends to policyholders that can either be added to cash value or used to help pay premiums. Be prepared to pay for all these perks.

“Whole life is ideal for individuals who want guarantees and the ability to accumulate savings,” Sarrubbo says.

On the other hand, if you prefer flexibility, a universal life insurance policy may be the better choice. You may want to be able to tweak your life insurance coverage as your life circumstances change.

For example, with a universal life policy, you can increase your premiums—and the potential size of your death benefit—when times are good, or decrease your premiums following a job loss or other financial hardship.

“It [universal life] does offer more premium and death benefit coverage flexibility,” Sarrubbo says.

Some types of universal life insurance can also make more sense if you are comfortable with higher risk in cash value growth in exchange for the potential of better cash value accumulation. You can find different cash value growth options among the types of universal life insurance, from low to high risk, while whole life offers only a lower risk, fixed-rate option for cash value growth.

Both types of life insurance have something to offer. In your life insurance buying search, don’t forget that term life insurance may turn out to be your best option

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