Is Universal Life Insurance the Same as Whole Life Insurance?

Key Takeaway

Universal life is a form of permanent insurance coverage, which may offer greater flexibility and customization than whole life insurance.

Whole Life vs Universal Life Insurance Image compound interest cash value

Universal Life (UL) policies are a type of permanent life insurance that differs from whole life policies. Whole life coverage is normally linked with fixed premiums and a set death benefit and cash value that grows due to a fixed rate.

In contrast, universal life insurance can give each policyholder greater control over the premiums they pay (as long as minimum payments are made to keep the policy active) and may offer various methods in which to grow cash value.

Both policies are designed to assure that when you pass away, your beneficiaries will be provided for financially. It is always worthwhile to explore the pros and cons of different life insurance policies or seek guidance from a trusted financial advisor or life insurance agent to ensure you understand how each policy works, and you are comfortable with the policy features.

How Are Universal Life and Whole Life Insurance Different?

Let’s start with a quick summary of some of the life insurance types you may wish to choose between:

A whole life insurance policy offers lifetime coverage, typically with fixed premiums and a guaranteed death benefit. A universal life insurance policy can also offer coverage that’s designed to last a lifetime, but with flexible premiums. So while premiums are fixed with whole life, universal life policies can offer the ability to contribute more than the minimum premium payments to help grow cash value.

This structure can work well for many families who must budget for life insurance payments around other commitments or who may need to adjust their premium payments as their circumstances change (provided the minimum payment is met). Because the premiums are not fixed, policyholders have the freedom to change the amount of frequency of their payments, but can risk the policy lapsing if the minimum requirements are not met. Also if they choose to adjust payments, they must make sure there is enough cash value in their account to cover any minimum payment requirements.

It’s worth noting that a similar scenario applies to a whole life plan if the policyholder does not make the minimum payments. This situation usually results in the policy lapsing.

Do Whole Life and Universal Life Coverage Offer the Same Benefits?

Life insurance policies offer a death benefit, payable when the insured person passes away. The death benefit is paid to their named beneficiary. Cash value accumulation is different from the death benefit, and grows as a policy matures provided the policyholder has funded their cash value appropriately. Loans or withdrawals may be taken from the accumulated cash value per the insurance company conditions.

A popular solution for those looking for life insurance coverage with more flexibility than a whole life policy may provide is guaranteed universal life insurance.

What is guaranteed universal life insurance? This kind of life insurance mirrors the stability of whole life protection with fixed monthly payments. The contrast is that there may not be as much of an opportunity to build cash value.

Guaranteed universal life coverage can be more affordable for some shoppers, with the added stability of fixed payments. The death benefit is payable to the named beneficiaries when the insured person pass away.

How Does Cash Value Work?

A universal life insurance policy can build cash value that can be used for anything you choose – such as saving towards the future or as a financial cushion should any unexpected costs or changes to your income occur. You can borrow or withdraw from the accumulated cash value within your policy, which could builds up over time–the cash value will depend on several factors – including how much extra was paid into the policy, and how the insurance company determined cash value growth.

Essentially, the policyholder has autonomy in managing their life insurance policy, adapting the policy to their requirements, adjusting as necessary, and customizing their life protection as they see fit (provided all company requirements are met). However, you should speak to a trusted financial advisor about what kind of policy might be best for you.

Which Type of Life Insurance Might Work Best For Me?

Whole life is sometimes considered more stable due to the guaranteed nature of the benefits payable, but with the downside that it can be too expensive for some applicants since the guaranteed coverage can be more costly. Universal life insurance coverage offers flexible premiums, but it also requires a bit more diligence to make sure your minimum premiums are still being met if any adjustments are made to the policy. 

However, if you anticipate that your income might increase, you can make correspondingly higher contributions and grow the cash value without putting strain on your finances. Premium flexibility is not always an option with a whole life policy.

It’s best to consider all kinds of life insurance when deciding what might work best for you and your family, and to always speak with a trusted financial professional.

EL01603k (4-24) 

The information above is for educational use only and does not represent insurance, tax or legal advice. It is not a recommendation or solicitation to buy insurance. Please talk to your licensed insurance agent for more information about life insurance and your needs. Please consult with the appropriate professional for tax or legal advice. Guarantees are backed by the claims-paying ability of the issuing insurance company.

Article Author: Meredith Bell
Author Bio: Meredith joined Everly in 2022 and has 20+ years of experience in the life insurance industry. She has held various roles in advertising, marketing, communications, sales and distribution support, and product development. Outside of the office, Meredith lives with her daughter Kennedy and their dog Mavis. Meredith enjoys cooking, camping, gardening, hiking, and bourbon (though not always at the same time). She is a live music enthusiast and an avid reader. Her favorite quote is by Thomas Jefferson: "I cannot live without books." Meredith agrees, but would add cheese, movies, and dogs to that list.

Policies are issued by Everly Life Insurance Company (“Everly Life”), Topeka, KS. Everly Life is not licensed in the state of New York and does not solicit or transact business in New York.

A.M. Best's 15 ratings are a measure of claims-paying ability and range from A++ (Superior) to F (in Liquidation). Ratings are current as of January 25, 2024 and subject to change at any time. While ratings can be objective indicators of an insurance company's financial strength and can provide a relative measure to help select among insurance companies, they are not guarantees of the future financial strength and/or claims-paying ability of a company and do not apply to any underlying variable portfolios. The insurance agency from which a policy is purchased, and any affiliates of those entities, make no representations regarding the quality of the analysis conducted by the rating agencies. The rating agencies are not affiliated with the above-mentioned entities, nor are these entities involved in any rating agency's analysis of the insurance companies.

CalendarLive support: Mon–Fri, 8am–5pm CT

© 2023 Everly, LLC