Both whole life and universal life are permanent life insurance products. The policy is for the life of the insured. The payout is assured at the end of the policy (assuming the policy is kept current) and the policy accrues cash value.
On the other hand term insurance is purchased for a specified period (typically for level periods such as 10, 15, 20 and 30 years) where a death benefit is only paid to the beneficiary if the insured dies during the specified period.
Whole life insurance is a fixed premium , fixed return product, also known as cash surrender life insurance. Whole life insurance offers consumers a consistent premium and guaranteed cash value accumulation. With whole life policies, your insurer pays a periodic dividend into your account, which causes its value to grow over time. You are allowed to borrow against the accumulated monies, however this reduces the value of your benefits. If you die before paying it back, the amount your beneficiary will receive at your death will be deducted from the policy’s total value.
A more flexible version of Whole Life Insurance is Universal Life. Universal life also features a savings element that grows on a tax-deferred basis, just like whole life. A portion of your premiums are invested in money market funds, mortgages, and bonds, by the insurance company.Your policy is credited tax-deferred, if there is a return on the investment. No matter how the investments perform, the insurance company guarantees a minimum interest rate ( usually 3-4% )will be applied to the policy.
Universal Life offers more flexibility than whole life. With universal life you can adjust the death benefit and the premium amount depending on your financial circumstances.
Consider this carefully when deciding which type of policy works best for you: both universal and whole life policies cost more than term insurance, but depending on your circumstances, the flexibility and long term financial security they offer are often worth the extra expense.
