Universal life insurance and whole life insurance are quite similar in many ways. Universal life insurance evolved from premises of whole life insurance. People wanted to buy whole life insurance policies that gave them more flexibility. These needs resulted in the creation of universal life insurance.
Universal life insurance has the advantage of providing more flexibility than whole life insurance does and also provides a greater possibility of a higher cash value if the financial markets outperform the insurer’s account.
Both the premium payments and death benefits are flexible with universal life insurance policies. The flexibility with the death benefit comes with the fact that the insured can increase or decrease the benefit without having to give up or start a new policy which would have to be done with a whole life insurance policy. Universal life insurance policies also have a variety of premium payment options which range from small minimums up to the maximum amount allowed by the Internal Revenue Service.
The biggest difference between whole life insurance and universal life insurance, is that with a universal life insurance policy, the insurance company passes some of the risk of maintaining the insurance benefits to the insured. Under a whole life insurance policy the death benefit is guaranteed to be paid when the insured dies as long as the premium payments are made. Under a universal life insurance policy, if the premium payments and cash value on the policy are not sufficient to cover the insurance costs, the death benefit lapses and is no longer available to be paid to beneficiaries.
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Another difference between universal and whole life insurance, is that with whole life polices the charges, expenses and costs of the insurance are not disclosed to the policy holder. With a universal life insurance policy all of this information is disclosed.
Universal life insurance policies also provide flexibility in terms of exit strategies to get out of the insurance contract and also offer zero interest loans that allow the insured access to the capital appreciation within the policy without a tax liability at the time.
Universal life insurance was formed out of the principles that govern whole life insurance, but cater to preferences that whole life doesn’t offer. Due to the increasing flexibility, universal life insurance policies are becoming more and more popular. However, there are still people who prefer to keep strict controls intact on their whole life insurance that forces them to keep to a schedule. Some whole life insurance policies do offer some flexibility in regards to premium payments and others do not.
