Difference Between Universal and Whole Life Insurance (With Table)

Permanent insurance covers both universal insurance and whole life insurance. They support you throughout your life and your family after your death with the help of your death benefit. It can be considered as a form of asset and commitment which can help you support your family forever. These types of insurance last longer than that compared to term insurance which is short-lasting.

Universal Insurance vs Whole Life Insurance

The difference between universal insurance and whole life insurance is that in the case of universal insurance, the premiums are modifiable. Whole life insurance has pre-specified and already established premiums that cannot be modified or changed according to the demands of customers buying the insurance. Universal insurance can be changed (increased or decreased) according to individual needs.

Universal insurance comes under a type of insurance called forever or permanent insurance. Similar to that of whole life insurance, it requires the policyholder to pay premiums which can be later withdrawn as cash value or death benefit (in the long term). In the long run, these types of insurance could be very expensive.

Whole life insurance is the commitment for the entire life. It requires an individual to pay a certain amount of premium as pre-specified by the company providing the insurance. This insurance later serves your family with death benefits once the policyholder is dead. It is expensive insurance when seen in the long run.

Comparison Table Between Universal and Whole Life Insurance

Parameters of Comparison Universal InsuranceWhole Life Insurance
FlexibilityIn Universal, insurance premiums can be modified or changed by policyholders. In Whole Life, insurance premiums are pre-specified and fixed.
GainsAn individual earns interest.An individual gains dividends.
Checking A policyholder is required to manage his own cash balance. The insurer keeps an eye on the cash balance and checks it periodically.
Coverage Coverage can be easily modified. Coverage usually is not modifiable.
ValuesThe interest can be both positive or negative, depending on the situation. Dividend Sales cannot change to negative.

What is Universal Insurance?

Universal insurance consists of many facilities and self-changeable decisions. The premiums and death benefits of universal insurance can be modified according to the needs of the client or policyholder. However, these changes need to be agreed to by both the insurer and the policyholder.

Universal insurance can be quite expensive in the long run. But many of its flexible choices make it a good type of insurance that would not lead to stress. Some of the decisions that can be taken by the policyholder include adjusting the premium or death rate, changing the payment of the premium, postponing the premium, etc.

It also allows the policyholder to build the cash value in the insurance. If one is not sure about how long his or her commitments are going to last, one should opt for universal insurance. However, it is very important to monitor the policy throughout to make sure the policy does not cause high mortality expenses in the long run. Also, make sure to manage the cash accumulation within a short period of time.

What is Whole Life Insurance?

The whole life involves a contract between a policyholder and an insurer. This type of insurance comes under the category of long-term insurance, which is permanent and stays with you throughout the journey of your life. In this insurance, the company sets pre-decided premium values that a policyholder needs to pay every month or year.

Until the policyholder is able to pay the premiums, the company guarantees to provide all the promised facilities and advantages of the insurance. Some of these advantages include a death benefit which is given to the family of the policyholder after his or her death. They also provide a saving component that is gathered throughout the years of saving.

This saving comes from the premiums paid as the company puts a certain part of the premiums in banks which provide a convincing amount of interest. Other advantages include borrowing cash values during emergencies, skipping premiums, etc. Some companies also allow for short term loan which needs to be paid in time.

Let’s take an example of a situation for opting for whole life insurance. A man of age 50 has two young children, a wife, and a house on mortgage. The whole life insurance will serve the family with death benefits after the man’s death. It will be helpful in the payment of the house mortgage and can help his children in completing their education. This is an ideal situation for opting for whole life insurance.

Main Differences Between Universal and Whole Life Insurance

  1. Universal insurance can be modified according to the needs of the policyholder, whereas in whole life, insurance premiums are pre-specified.
  2. In universal insurance, interest is earned, whereas In whole life insurance, an individual gains dividends.
  3. Universal insurance coverage can be easily modified for any individual, whereas in whole life, insurance coverage cannot be easily modified.
  4. In universal insurance, the policyholder is self-responsible for checking the accumulation of his cash. In whole life, the insurer is responsible for checking all the cash accumulation over the years.
  5. In universal insurance, interest can be both positive and negative, but in whole life, insurance dividends cannot be negative.

Conclusion

Both universal insurance and whole life insurance stay with an individual all life long. These insurances help you to solve your family’s financial issues even after your death. Both of them work equally well when seen in the long term but make sure to go through each and every policy of the company before opting for these insurances. Also, remember that there is an inclusion of tax in the death benefit that the family members of the policyholder receive after his death.

References

  1. https://www.jstor.org/stable/252615
  2. https://www.aeaweb.org/articles?id=10.1257/aer.98.5.2242

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