Whole vs. Universal Life Insurance

Save Money by Comparing Insurance Quotes
Compare Free Insurance Quotes Instantly
ZIP Code must be filled out!
 Secured with SHA-256 Encryption
writter logo
Written by
Feature Insurance Writer
reviewer logo
Reviewed by
Farmers CSR for 4 Years
UPDATED: 2021-09-30T20:31:46.197Z
Advertiser Disclosure

It’s all about you. We want to help you make the right coverage choices.

Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We are not affiliated with any one insurance provider and cannot guarantee quotes from any single provider.

Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different insurance companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.

Editorial Guidelines: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We are not affiliated with any one insurance provider and cannot guarantee quotes from any single provider.
Couple looking at insurance documents

While choosing a life insurance policy may feel like a complicated affair, it’s important to understand exactly what you’re signing up for. If you’ve ever had questions about the differences between whole and universal life insurance, we’re here to answer them.

To put it simply, the difference in life insurance options is that whole life insurance policies are usually fixed when it comes to rates and payouts, while universal life insurance policies offer more flexible premium options, with varying premium costs and death benefits.

While you can separate whole and universal health insurance by fixed and flexible, there’s a lot more to understand when it comes to these two kinds of policies. So, what are the differences between universal life insurance vs whole life insurance? You may even wonder how much life insurance costs.

If you need to find the best value on life insurance, you can compare life insurance rates with our free search tool.

Permanent Life Insurance: A Quick 101

Before delving into the differences between whole and universal life insurance, it’s important to note that they both fall into the larger category of “permanent life insurance.”

Permanent life insurance refers to policies that:

  • Last for long periods — often until death
  • Allow for cash payouts in the case of cancellation
  • Typically contain both investment and insurance portions

With that said, we can delve into the different types of permanent life insurance.

Save Money by Comparing Insurance Quotes

Compare Free Insurance Quotes Instantly

ZIP Code must be filled out!

Secured with SHA-256 Encryption

Whole Life Insurance

The most common type of life insurance policy, whole life insurance is all about consistency and fixed contracts. When you sign up for a whole life insurance program, you agree to a premium that will be paid regularly and remain the same for the program’s entirety.

If you are wondering how much life insurance costs, premium rates are determined by individual policies, but several factors may go into determining your particular rate, including:

  • Age
  • Gender
  • Health conditions
  • Criminal history
  • Credit

With fixed premium rates, you’ll receive a guaranteed minimum payout. The minimum payout provided by your lifetime coverage is not subject to change, but you can receive more than that guaranteed sum based on your cash value growth or accumulation.

Insurance companies also use life insurance classifications to determine your level of risk. Your classification can affect how much your policy costs.

Cash Value Accumulation

What is cash value accumulation? Simply put, it’s a kind of investment in your life insurance policy.

According to Forbes, whole life insurance policies typically work to invest a portion of your premium payment into a cash-value account. This means:

  • You’re Investing For The Future – While whole life insurance policies guarantee a minimum payout, there is no maximum payout. As you continue to pay your premium, more money is invested into your cash-value account, accumulating interest and acting as a personal investment. As long as the money stays in your account, you’re not required to pay taxes on it.
  • You Can Take A Loan – If you’re looking to borrow from your cash-value account, you have the option to take out a policy loan. This can be a great added use for your life insurance policy, enjoyed before the policy would typically go into effect.

While the amount of interest gained by whole life policies can vary greatly (from one to six percent), keep the investment factor in mind when determining health insurance policies.

Whole Life Insurance Policies Benefits

There are some key factors to take into account when considering your payouts and benefits from a whole life insurance policy, including:

  • Payout Splitting – There can be more than one beneficiary on your whole life insurance policy. As well, you can determine the percentage of the payout that each beneficiary receives. It may be useful to assign contingent beneficiaries as well, in the case that you outlive your primary beneficiary, these secondary choices will receive your benefits.
  • Surrendering Cash Value – If you’d like to take out your cash value component early, you can opt to surrender the cash value of a portion or the entirety of what’s in your cash-value account. There is usually a surrender fee associated with this procedure. After that, you can retrieve the rest of the money in the account.

Why You Might Choose Whole Life Insurance

Understanding the benefits, you may see why someone would invest in a whole life insurance policy:

  • Trust Fund – If you’re looking to create a fund after you pass for your family to live off, a whole life insurance policy may be a good option. A large lump sum with a high percentage of interest could pay out for a significant period.
  • Guarantee The Amount You Need – Whole life insurance plans are a great way to make sure you can pay for funeral or death expenses. Because the payout amount is guaranteed, you can make arrangements ahead of time and make the future more stress-free.
  • Investment Opportunity – If you’re interested in seeing how far your investments take you, you can borrow against your policy, or take your cash value early. Whole life insurance gives you plenty of investment opportunities.

Save Money by Comparing Insurance Quotes

Compare Free Insurance Quotes Instantly

ZIP Code must be filled out!

Secured with SHA-256 Encryption

Universal Life Insurance

Your other option for permanent health insurance, universal life insurance policies can extend into old age or indefinitely, until death.

Universal life insurance typically breaks down into three subcategories:

  • Guaranteed Universal Life Insurance
  • Indexed Universal Life Insurance
  • Variable Universal Life Insurance

These various policy types all have pros and cons, so we’re going to tackle them one at a time.

Guaranteed Universal Life Insurance

If you’re looking for an inexpensive way to make sure your beneficiaries get a payout in the case of your passing, consider guaranteed universal life insurance. Similar to whole life insurance but slightly simplified, the key takeaways about guaranteed universal life insurance are:

  • Longer Policy, Higher Premium – Whether your policy covers you until 80 or 120, the monthly price tag will reflect the length of the policy. Policy length and the monthly price are the two key numbers to crunch when determining what policy will bring you the best overall benefits.
  • No Cash Value – Unlike, whole life insurance, guaranteed universal life insurance doesn’t have an investment portion of a policy’s cash value. This means if you decided to end your long-term policy, there’s no account to cash out.
  • Ideal For Simple, Long-Term Coverage – If you’re uninterested in the investment portion of life insurance policies and more concerned with a fixed payout, guaranteed universal life insurance is a perfect option. You can pay less on monthly premiums and still be covered for after-death expenses.

One caveat of many guaranteed life insurance policies is a “no lapse policy.”

This long-term life policy is designed to keep premiums lower by canceling policies when premiums aren’t paid. That means if you miss your monthly payment, your policy may be voided.

Be sure to keep up with your monthly payments, and contact your insurance company if you have any issues with payments.

Indexed Universal Life Insurance

A slightly riskier investment, the indexed universal life insurance product offers investment opportunities like whole life insurance coverage, with less emphasis on guarantee and more on potential earnings.

Indexed universal life insurance product policies are tied to stock indexes. This means they are at the whim of the market in terms of how they mature. Not only that, there are often large participation fees associated with these programs that can affect your overall payout.

It’s important to mention that indexed universal life insurance policies:

  • Typically have a minimum or “floor” return rate
  • Can lose all cash value if the policy changes
  • Are susceptible to market fluctuations that can eat up your investment gains

Indexed universal life insurance plans are still popular, but it’s important to weigh the risks of these policies with the rewards. Keep in mind that many of the benefits pitched by these programs are not guaranteed.

Variable Universal Life Insurance

For a more hands-on approach, variable universal life insurance can offer investment opportunities that you can control. This option places you in the driver’s seat, with an investment portion that encourages policyholders to maintain an active role.

Variable universal life insurance offers:

  • Varying Premium and Benefit Amounts – Looking to invest more in your life insurance or thinking about paying a little less? Both are options with a variable universal life insurance policy.
  • Flexible Interest Rates – Based on the options available to your specific policy, you may be able to choose the interest rate of your insurance policy investment.
  • Choose Cash Value Investments – Through variable universal life insurance, you’ll have access to sub-accounts that may be invested as you determine, based on the options within your policy.

Variable universal life insurance may be the most complex of policies, so it’s typically recommended to those with investment experience and acumen.

Ultimately, there can be even more variations of universal life insurance policies, and insurers can mix and match features from different policies. While it can make things more complicated, it does allow for even more options when it comes to picking a life insurance policy that you can rely on.

Get the Best Coverage For All Your Life Insurance Needs

Now that you know the difference between whole and universal life insurance options, there’s still a lot of information to cover, policies to examine, and questions to ask when trying to determine the right policy for you. Doing your research before you apply for life insurance can help.

Fortunately, we have all the information you’re looking for in one place — with convenient search options and competitive prices. You can discover whole and universal life insurance policies to fit your budget and your insurance coverage needs, so getting insured has never been easier.

Don’t wait until it’s too late, and enter your ZIP code today to get free life insurance quotes.

Save Money by Comparing Insurance Quotes

Compare Free Insurance Quotes Instantly

ZIP Code must be filled out!

Secured with SHA-256 Encryption


  1. https://www.forbes.com/advisor/life-insurance/whole-life-insurance/

Save Money by Comparing Insurance Quotes
Compare Free Insurance Quotes Instantly
ZIP Code must be filled out!
 Secured with SHA-256 Encryption