Life insurance is crucially important in creating lasting financial security for your family. For those interested in a permanent life insurance policy, it can be broken down into two main types: universal and whole life.

But what are the key differences between them? That’s what we’re here to answer. Read on for everything you need to know when it comes to universal vs whole life insurance.

Universal vs Whole Life Insurance: Quick Summary

The biggest similarity between universal and whole life insurance is that both are permanent policies. This means that, as long as you keep up with payments, you will continue paying into the policy until your death, when your beneficiaries will then receive a lump sum payment.

Another key similarity is they both have a cash value element alongside the death benefit. The big difference is that whereas whole life insurance places that money in a stable savings account, universal life insurance invests it.

It means that whole life insurance is a more stable policy, but universal life insurance can offer greater returns. In both, the death benefit won’t be affected by this cash value element. That is the simplified version, so let’s take a look at the two in greater detail.

What is Whole Life Insurance?

Along with being a permanent form of life insurance, one of the defining features of whole life insurance is its fixed premiums. You’ll pay the same amount throughout the life of the policy, which is great for long-term budgeting.

Many people also love this policy for its guaranteed cash value. It grows at a guaranteed rate set by the insurance company. This can become a valuable cash asset from which you can borrow or withdraw. If left alone, it will be included in the payout to your beneficiaries.

Pros of Whole Life Insurance

Guaranteed Premiums and Death Benefit – The premiums will stay the same and the death benefit is guaranteed. This will appeal to those who value stability.

Cash Value Growth – The cash value grows at a stable amount and you don’t need to worry about bad investments.

Dividends (Participating Policies) – With some policies, you can receive dividends from the company’s profits.

Cons of Whole Life Insurance

Higher Premiums – With its stable benefits, whole life insurance usually comes at a higher cost than other policy types.

Less Flexibility – While some love the stability, it also comes with a lack of flexibility as you won’t be able to adjust the policy or its benefits.

Lower Investment Potential – While the cash value is guaranteed to grow, it will typically offer lower returns than other accounts.

Related Article: https://www.marathoninsurance.ca/blog/how-much-does-whole-life-insurance-cost/

What is Universal Life Insurance?

Universal life insurance offers more flexibility. In good times, you can pay more into the policy with the excess going into the investment portion of the policy. If you hit a bad financial patch, you can pay less, as long as there is enough in the cash value to cover the cost.

As for the investment aspect, this can be linked to market investments or interest rates. This allows for higher returns but with greater risk. There is also flexibility in the death benefit, as long as your cash value can support it.

Pros of Universal Life Insurance

Flexible Premiums and Coverage – You can adjust both the premiums and the death benefit depending on your financial situation.

Potential for Higher Investment Returns – There is potential for much higher cash value growth than with other types of insurance.

Tax Advantages – You won’t pay taxes on any of your gains unless they are withdrawn from the policy.

Cons of Universal Life Insurance

Investment Risk – The cash value in this policy is not guaranteed. It’s important to remember the value of investments can go down as well as up.

Complexity – Universal life insurance policies are a little more complicated. This can be a negative for those who want more simplified premiums, investments, and death benefit.

Cost of Insurance Charges – Over time, the cost of insurance may increase. This can sometimes be covered by the cash value, but it will deplete it if used for this purpose.

Related Article: https://www.marathoninsurance.ca/blog/what-is-universal-life-insurance/

Universal vs Whole Life Insurance: Which is Right for You?

Deciding between these two policy types will come down to your views on long-term financial goals, risk tolerance, and desire for flexibility. There is no ‘best’ policy, as it ultimately comes down to personal preference.

Universal life insurance is perfect for those who want more flexibility and have a higher risk tolerance. It’s a more complicated policy but can have greater benefits should the markets work in your favour.

For those who are looking for something more simple and secure, whole life insurance is the way to go. This will give you guaranteed premiums along with guaranteed cash value growth. You don’t have to ever worry about the performance of your life insurance plan.

It can still be a tough decision to make, but both can financially secure your future. If you still have questions, then it’s a great idea to talk to an insurance broker. They’ll not only be able to give you more answers but will also search multiple insurers to find the lowest quote.

Final Thoughts

When it comes to universal vs whole life insurance, there isn’t one clear answer. The best one for you will come down to which pros you value the most, and which cons put you off. You can then decide the best insurance policy for your family and budget.

Simply put, whole life gives you guarantees and simplicity, whereas universal life provides flexibility and the potential for higher returns. If you want to know more, get in touch with Marathon Insurance today. We’ll be happy to take your call and find the right life insurance policy for you.