The two main types of life insurance: whole and universal. There are several significant differences between the two and understanding both the advantages and disadvantages of both is essential in making an educated decision.
Universal Life Insurance
Universal life insurance is also termed "adjustable life insurance," because it offers more flexibility. It starts with the basic premise of term life insurance (you buy a policy for a specific term), but then adds in a cash investment option. Instead of putting 100% of your premium towards the policy, part of your premium goes into a cash account within the policy. This cash account earns interest which you can use in a variety of ways, including actually paying your policy premium.
Advantages: Universal life insurance is flexible and has a higher interest rate. As a result, universal life insurance premiums are typically lower for the same amount of coverage.
Disadvantages: Universal life is more expensive than term life, but still cheaper than whole life. Even with the cash value, the return on investment is not as good as other investment options. Many financial professionals recommend buying term and investing the difference.
Whole Life Insurance
Whole Life Insurance is best for long-term goals because it is designed to cover your whole live, not just upon death. A whole life policy offers a fixed premiums and guaranteed cash value accumulation. Under a whole life insurance policy, you agree to pay the same amount each year for as long as you live. The insurance company invests your premiums and gains interest which you can use throughout your life.
Advantages: It comes with a savings option and an even, predictable premium. There are no surprises with whole life, everything is set and guaranteed.
Disadvantages: This type of life insurance is typically more expensive. Interest paid is adjusted annually rather than monthly and may be less than other investment options. In addition, a whole life insurance has little or no flexibility if you want more coverage later on.
Whole life insurance is designed to benefit you throughout your life with guarantees and a steady investment tool. Universal life insurance gives you the flexibility to regulate your insurance coverage needs. You can talk with an agent to determine your life insurance needs, and what plan will work best for you.
By Matt Reynolds - Google+