Whole life vs. universal life insurance

What’s the difference between whole life and universal life insurance?

You’re thinking about life insurance to protect your family. That’s great! The right policy can give you the peace of mind and confidence that comes from knowing your loved ones will be financially secure and able to maintain the lifestyle they are accustomed to in case you pass away.

We’ll be the first to admit that life insurance choices can be confusing—but don’t let all the different terms and options stop you. While there are a host of different life insurance policies, almost all fall into three basic categories:

1. Term Life covers a set period of time 
2. Whole Life provides guaranteed lifetime protection
3. Universal Life offers flexible permanent life coverage

This article will cover the similarities and differences between whole life insurance and universal life insurance.

Whole life and universal life: two ways to get permanent protection

While whole life and universal life both offer permanent life insurance protection—they just go about it in different ways. With whole life, your premiums are fixed and guaranteed never to rise1. As long as you continue to pay them, you can count on the life insurance benefits being paid to your beneficiaries. With universal life there are no fixed premiums and you have more flexibility when you make payments. However, if the policy is not adequately funded, your coverage may be reduced or end sooner than expected. 

Additionally, the cost to keep the policy can go up significantly as you get older. Take that into account when you decide which is better for you.

Whole life insurance offers more guarantees

Whole life has a guaranteed death benefit that will never decrease, as long as premiums are paid. Your family will always get the amount you set your policy for at minimum. There’s also the potential for dividends to increase the amount of coverage over time. Your premiums will also never change. For many, this reliability is the key factor in their decision. 

Universal life insurance is more flexible

Universal life offers more control, but it requires oversight and doesn’t have a guaranteed death benefit. You can adjust your policy, and even your premiums (within limits), as your life changes. Without adequately funding it, your policy can potentially end since the death benefit is not guaranteed, but universal life often gives you the most permanent life protection for your dollar.

Both can build cash value

The cash value of a life insurance policy is an important way to save for the future, providing a safety net during life. You can borrow against the cash value of your policy to pay for unexpected expenses, allowing you to be better prepared for whatever lies ahead². Whole life insurance offers guaranteed cash value build up over the life of the policy. Universal life insurance policies have the potential to accumulate cash value, but it can fluctuate over time based on how you fund the policy and other factors.

Why choose whole life insurance?

Whole life insurance offers permanent, stable protection and access to cash value when you need it. It’s designed for someone who wants to “set it and forget it,” knowing their loved ones will be protected when they pass. Enjoying the full range of benefits from Whole Life involves a long-term commitment to keeping the policy in force and paying premiums.

Premiums are guaranteed to never increase

Once you customize your policy to the benefits and premiums that fit your situation, it’s set. You don’t have to do anything else, and you never have to worry about the cost increasing or the benefits changing.

Builds cash value

With whole life, the cash value of your policy grows tax deferred. This valuable asset can be used whenever you need it, for whatever you choose. It can cover unexpected medical costs, provide additional income in retirement, or even be used for a grandchild’s college tuition. 

Has growth potential through dividends

Dividends provide an opportunity for your policy to grow more over time. They can be used to pay premiums, add to the cash value, or even be taken as cash. Dividends are not guaranteed, but New York Life has paid them every year since 1854.

Related: Explore whole life insurance

Why choose universal life insurance?

Universal life insurance generally gives you the ability to fully customize your protection up-front and make adjustments down the road. It’s for those who want to be able to adapt their policy as life changes.

Fits your needs now and in the future

There are many ways to configure your universal life policy. You can design your coverage to last for as little as fifteen years, for the rest of your life, or somewhere in between. You can adjust your premium payments as your income fluctuates and even increase or decrease your death benefit as your needs change over time. 

Lower premiums than whole life insurance

Unlike whole life insurance, the death benefit and cash value of a universal life policy are not guaranteed on Universal life policies. That’s one of the main reasons why universal life generally offers the most permanent life insurance protection for your dollar. 

Related: Explore universal life insurance

Which is better, whole life or universal life?

That will depend on your needs and circumstances. If you are still unsure which type of policy is best for you, it can help to speak with a financial professional about the different ways insurance products and features can be combined. Our experienced agents can walk you through your options and help you build a strategy that is personalized to your family’s needs.

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¹Any guarantees of a policy are based on the claims-paying ability of the issuer.

²Accessing the cash value will reduce the available cash surrender value and the death benefit. Loans will involve interest payments. 

In Oregon, the Policy Form Number for New York Whole Life Insurance is ICC18217-50P (4/18); the Form Number for New York Life Universal Life is ICC19-319 51P