What Is the Difference Between Universal and Whole Life Insurance?


Universal Life Insurance Whole Life Insurance
Adjustable policy Premiums are the same through the length of the policy
Invests part of premiums Can pay out dividends
Interest earned is tax-deferred Can borrow against the cash value

While both universal life insurance and whole life insurance are similar in some ways, there are plenty of differences to discuss, including how they perform and the advantages and disadvantages of each.


A Quick Overview of Universal and Whole Life Insurance

Universal and whole life insurance policies are two different types of permanent life insurance. They differ from popular term insurance policies by ensuring that you have a death benefit to payout at the end of the policy, and they extend from the moment the policy is activated until termination or end of life.

These permanent policies have higher premiums and cash values, but there is plenty of variation between the two regarding premium amounts, how the policy is handled, and how cash value is presented.


Universal Life Insurance

Universal life insurance is also referred to as adjustable life insurance, highlighting the flexibility of this type of policy. You can adjust the death benefit as needed, increasing it as your situation improves or reducing it if issues arise.

You can also pay the premiums in a more relaxed schedule depending on the insurance provider. Often the account needs to be at a certain value before this is possible.



Universal life insurance policies take your payments and put part into an investment account. This portion gains interest that is then added to your account, and taxes are deferred on any interest you earn here.

These policies also give you the chance to adjust the death benefit as your financial situation or life needs change. If you want to increase the amount then you usually need to do a medical exam first, but lowering is a seamless transition to reducing premium payments.

You can also use the cash value of the policy to pay premiums for as long as you have enough funds to cover payments.



Policyholders are often attracted by the ability to adjust the plan as needed. One of the most difficult parts of deciding on a policy relates to the possibility that your situation changes and universal life insurance allows you to better manage these changes.

Because you can also borrow or even withdraw funds from the cash value of the account this can benefit your current situation as needed. This is not a great choice for making repeated withdrawals, but it provides a nice safety net for purchasers.



The portion of the policy that is invested is subject to market conditions. If your policy performs well, then you can benefit from increased interest rates. But poor market conditions can lead to the policy not returning as estimated and even decreasing in value.

Universal life insurance policies are also subjected to higher fees if you decide to withdraw funds or terminate the policy. This reduces the cash value of the policy or the amount that can be paid out to you.


Whole Life Insurance

Whole life insurance policies provide lifelong coverage, so you do not need to worry about the policy timing out or becoming moot after a certain period.

Even if you fail to make a payment, the amount will automatically be drafted from the policy as a loan on the premium, and your coverage will not lapse until the loan exceeds the cash value. This means that beneficiaries can receive the death benefit as long as the policy has not been terminated.

Whole life insurance plans are great to handle responsibilities that extend over time, including situations such as the care of a dependent adult child or covering post-death expenses like estate taxes.



A whole life insurance policy performs by combining life insurance coverage with a savings aspect.

The company takes part of your premium payments and puts them into a bank account with high interest so that the amount can increase in value over time. Some whole-life plans also pay out dividends to policyholders once a year.

Either way, the cash value of your whole life policy increases as time goes on, premiums are paid, and interest is accumulated. This can help achieve goals on a long-term schedule, and you can borrow against the policy once you meet a minimum cash value.



Many who decide on a whole life insurance plan are attracted to the cash value aspect and the potential of dividends in the life insurance company.

The cash value gives policyholders a chance to work with the policy while they are still alive. Once the policy reaches a certain cash value then the policyholder can borrow against it to fund things like college tuition for their children or major emergency expenses.

Certain policies also pay out dividends from the life insurance company annually. These can be received in cash, or you leave them to accumulate interest. Many policyholders use dividends to reduce their premiums or purchase additional coverage.



The largest disadvantage of whole life insurance is that it is expensive, more than both term life insurance and universal policies. This relates to the additional benefits and the length of the policy, but it can put it out of many budgets.

Most who purchase whole life insurance policies are encouraged to do so when they are younger. This helps lock in a lower rate later on, and it leads to a more affordable policy in the long term.


Choosing the Right Policy for Your Needs

The differences in these two policies are enough to affect which one is best for your situation. This all depends on your current financial capabilities and how comfortable you are taking risks with your life insurance value.

Securing the help of a life insurance agent like Sim Gakhar is the quickest and easiest way to not only determine which policy is best for you but where to find the ones that fit your situation. Contact Sim Gakhar today to get started planning the rest of your life.


FAQs & Helpful Resources Regarding Whole Life Insurance

Other Types of Life Insurance Products You May Want To Check Out



When To Get Covered

When it comes to life insurance there really is no time that is too soon to get covered. And, this is because the younger you are, the cheaper those premiums are going to be. Not only this, but you are probably healthy right now.

If you wait until something bad happens, you will not only without a doubt face higher premiums, but you might not even be able to get covered at all.





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