Whole Life Vs. Universal Life Insurance – Spot the Difference

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?

The Differences Between Whole Life and Universal Life

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

Permanent life insurance generally remains in force as long as you pay premiums, and it builds cash value over time. You can tap into a policy’s value while you’re alive. Even though whole life and universal life are both types of permanent life insurance, they differ in several ways, including costs, premium flexibility, cash value growth, and death benefit.

Whole Life Insurance

Whole life insurance is a permanent life insurance policy that has a fixed premium and death benefit. The cash value within a whole life insurance policy builds at a fixed interest rate, such as 2%, which gives whole life more predictability than universal life policies.

Pros and Cons of Whole Life Insurance


  • Fixed premium, death benefit, and rate for cash value growth.
  • Offers low risk.
  • Easiest type of permanent life insurance to navigate because everything is fixed and easy to understand.


  • Doesn’t provide flexibility to change premiums or the death benefit amount as your needs change.
  • Premiums can be very expensive compared to other types of life insurance.
  • Can build less cash value than some types of universal life insurance.
Who Can Benefit from Whole Life Insurance?

Whole life insurance can be a good decision for someone who wants guarantees and cash value that grows at a steady rate. Whole life may be a good selection if your main life insurance goal is to pay for final expenses, such as your funeral. For example, burial insurance policies are generally small whole-life insurance policies.

The predictability of whole life insurance may also benefit someone who wants to use a future life insurance payout for the care of a lifetime financial dependent, such as a special needs child and doesn’t want to have to make investment decisions.

This whole life coverage could be part of a special needs trust (SNT), which is a legal agreement typically created by a parent or guardian. The money is held in an account and used to support the child.

A third party, called a trustee, administers the trust and administers funds to care for the child. Though parents often name themselves as trustees, you can also select other trustees, such as family members, to help. You can also name a successor trustee, who oversees the trust after you die, resign, or become incapacitated.

Universal Life Insurance

Universal life insurance allows you to adjust both the premiums and the death benefit to fit your needs better within certain limits. 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: If there is a cash value component, growth may be minimal, but this type of policy 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.

Pros and Cons of Universal Life Insurance


  • More flexibility by allowing you to adjust premiums and the death benefit.
  • A variety of types of universal life insurance lets you choose a policy that best fits your life insurance preferences.
  • An indexed or variable universal life insurance policy may gain more in cash value than whole life.


  • Choosing sub-accounts in a variable universal life insurance policy requires knowledge about those investments and active policy management.
  • An indexed universal life insurance policy’s participation rates and caps can limit your cash value growth potential even when the markets do well.
  • A variable universal life insurance policy’s success is linked to sub-account decisions, which may not interest people who don’t want to be actively engaged in investment decisions.

Who Can Benefit from Universal Life Insurance?

Universal life insurance could be a good purchase for someone who wants a permanent life policy that offers flexibility, which allows you to increase/decrease the death benefit and premium based on your financial situation at the time. It may also be a wise choice for a person who is interested in taking a more active role in choosing their investments.

Which Costs More: Whole Life or Universal Life Insurance?

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

Why Does Whole Life Cost So Much More Than Universal Life Insurance?

Whole life insurance costs more than universal life insurance because the premium payment amount, death benefit, and growth of the 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, senior vice president and head of life products at New York Life.

The cost of whole life insurance does not change while you own the policy. 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 life insurance dividends if your insurer is a mutual company.

On the other hand, with universal life insurance, you can adjust your premium amounts. You also can adjust the death benefit either lower or higher in a universal life policy. You may need to undergo underwriting again if you want to get a higher death benefit.

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