Whole Life Insurance vs Universal Life Insurance

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Insurance has established a reputation of necessity across the times.  This is due to the increasing fluidity of risk that families face in different circumstances. In response to this, a greater need for security arises.

In most cases, you might find yourself enrolling a premium for term life insurances, dubbed as “temporary insurance” which is usually cheaper. But there are lots of times when permanent insurance becomes a better choice.

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Permanent insurance stays with you until your last breath, no matter how old you become. Although it costs more, this type of insurance can suffice your permanent needs. It is ideally used to cover off cases that you can anticipate in the future, such as estate taxes that are starting to cripple and leaving a legacy for your children. These insurance policies are long-term in nature and there’s a longer projection of safety that it can provide.

Permanent insurance comes in two forms – Whole Life Insurance and Universal Life Insurance. Choosing between these two kinds of life insurance is as difficult as choosing between a permanent and a temporary insurance. To help you assess which permanent insurance plan might suit your needs, we have carefully laid down the details that set the boundary between the two.

When you are in a whole life insurance policy, you agree to pay premiums to a life insurance company in exchange for a guarantee that you’ll receive a definite benefit payable to the members of your family or other beneficiaries upon your death. Most of the time, the earnings you get in this insurance policy are set by the life insurance company which is based on the overall return of the investments. If the earnings go above or beyond the requirement to cover the policy, the corresponding benefits go to the policy’s cash reserve. A cash reserve established via your policy is like a savings for you which you can borrow against, use to pay other premiums or just allow to accumulate so that you can use it for your long-term goals such as retirement.

As you can notice, a whole life insurance policy is indeed very rewarding in the long run. The thing that makes it unfavorable for most people is that the amount of premium you pay for it is pretty expensive and not flexible. This means that most of the premiums go to the life insurance component rather than to the investment component. You can’t really trust that a certain amount is available for you in case when you need the money other than those covered by the insurance. With these, a Universal Life Insurance is established.

A Universal Life Insurance policy is somewhat a combination of a term life insurance and a whole life insurance. A basic universal policy allows you to set the amount of premium for the corresponding death benefit, much like a term life policy. The thing is, under this policy, the death benefit won’t increase, and the cash value is much more sensitive to access. The premium cost for it falls in between term and whole life, so it might solve the issue of not having permanent insurance from a term policy, while staying more affordable than whole life.

The very thing that separates both policies is in terms of flexibility. Both insurance policies depend on the interest rates. A higher the interest rate means that it isn’t that hard to generate an amount the same with the returns. As a result, universal life insurance premiums are typically lower during periods of high interest rates than whole life insurance premiums for the same amount of coverage. But then interest paid on universal life insurance is adjusted monthly, while interest on a whole life insurance policy is adjusted annually. This means that during periods of rising interest rates, universal life insurance policy holders see their cash values increase much more rapidly than those in whole life insurance policies.

With the different reasons we have laid down, we have arrived in a conclusion for both policies.

Universal Life Insurance policy is a good choice for most who wishes to invest their money and look out for the growth of taxation. Candidates for this policy are those with high income and low expenses and those who have some disposable income.

On the other hand, a Whole Life Insurance policy is ideal for those who know they can pay and maintain a set premium for many years. Candidates for this policy are those who cite themselves as lacking discipline to invest which might use it as a force savings plan.