If you’re just beginning your search for life insurance, the number of options can come as a surprise. Since everyone’s financial needs are unique, life insurance comes in all different types to help meet your family’s goals.

For many people, term life insurance is the best choice. Flexible and affordable, term life keeps you covered for a set period of time (typically 10 to 30 years). But what if you need financial protection that doesn’t expire? That’s where permanent life insurance comes in.

Permanent life insurance provides lifelong coverage as long as you pay your premiums, and it also builds cash value you can access while you’re living. If you’re in the market for a permanent policy, your two main options are whole life insurance and universal life insurance:

• Whole life is the most common and dependable type of permanent life insurance. Your premiums and death benefit are fixed, and your cash value grows at a steady rate.
• Universal life insurance allows you to change your premium or death benefit if needed, and your cash value grows based on current interest rates.

Wondering about the differences between whole life and universal life? Need help deciding between term life vs. whole life vs. universal life insurance? Here’s a closer look at how they compare.

	Whole life	Universal life
Length of coverage	Lasts your lifetime, as long as you continue to pay your premiums	Lasts your lifetime, as long as you continue to pay your premiums
Premium	Remains the same throughout the policy	You can adjust how much you want to pay per month
Death benefit	Stays the same throughout the policy	You can adjust your final payout amount
Cash value	Grows at a steady rate	Grows based on current interest rates

 

What whole life insurance includes that universal doesn’t

When it comes to whole life vs. universal life insurance, the main upside of whole life is its dependability. Your premiums and death benefit are fixed when you buy, so you can count on payments and a payout that won’t change.

Many people choose whole life because:

• It makes budgeting easier. Since your premiums won’t go up or down over time, whole life can be a good choice if you’re living on a fixed income or tight budget. Your death benefit also won’t fluctuate, which can give you peace of mind that your family’s needs are covered.
• Your cash value has a guaranteed rate of return. Another big difference between universal and whole life insurance is how your cash value account earns interest. Your insurance provider sets a fixed rate for your cash value with whole life, so you know exactly what you’ll earn over time.
• You may earn dividends. Some life insurance companies pay dividends on whole life policies, which you can reinvest in your cash value or use to pay your premiums.

What universal life insurance includes that whole doesn’t

Flexibility is the biggest reason that people choose universal life insurance vs. whole life insurance. This type of policy gives you the freedom to change your premiums and death benefit, which can be helpful if your finances change over time.

Universal life can be a good fit if:

• You expect your salary or expenses to vary. If you start a business, get a promotion, or lose your job, universal life gives you the option to adjust your coverage to match. You can increase your premium and potential payout when times are good, or scale back when your budget is tight.
• You want more earning power. The growth of your cash value depends on the current interest rates. This can allow your cash value to grow quicker with universal life insurance vs. whole life insurance if interest rates work in your favor. Keep in mind, though, that you might also earn less if interest rates go down.

Similarities between whole and universal life insurance

While there are several differences to know between whole life vs. universal life insurance, they also share some common features. Keep these in mind as you shop for coverage.

Both offer cash value

As permanent policies, both whole and universal life come with cash value you can access while you’re alive. You can borrow from your cash value for any reason, or you can cash out your entire policy.

Both offer lifelong protection

You don’t need to worry about renewing whole or universal life since they’re both permanent policies, which stay active as long as you pay the premiums.

Both provide a guaranteed payout

You can change your death benefit with universal life, but both policies are guaranteed to pay out a death benefit when you die. Keep in mind any withdrawals from your cash value will reduce the payout.

How to decide between whole and universal life insurance

When considering universal vs. whole life insurance, which should you pick? Here are some factors to consider when selecting your policy.

Budget

Whole life premiums are fixed, and universal life premiums only require a minimum payment per month. Depending on whether your income fluctuates or you’re on a fixed income, you may like the stability of a fixed premium or want a more flexible premium.

Age

If you’re young, you may be comfortable with the risk of universal life insurance, which depends on the market and can rise and fall. If you’re older, you may want the dependability of whole life insurance, which grows at a steady rate.

How long you need it

When comparing universal vs. whole life insurance, they both offer lifetime protection. If you only need protection for a certain period of time, like while you’re raising a family, you may want to consider term life insurance instead.

Still have questions about whole life vs. universal life insurance?

Remember: The right life insurance policy is one that provides financial protection and peace of mind for you and your loved ones. Talk to one of our agents to explore your options, or get started with a quote.

At Fidelity Life, our goal is to make life insurance simple, affordable, and understandable for everyday families. This content is intended for educational purposes only. Each post is carefully fact-checked, reviewed, and updated regularly to ensure the information is as relevant as possible.