Whole life insurance covers the insured for his or her whole life, provided all premiums have been paid and the policy has not been surrendered. Some policies are “paid up life” and premiums are paid out for a specified time period then the policy is paid up for life, while others are paid throughout the policy holder’s lifetime and premiums are fixed for the life of the policy. Cash value is an additional feature; an amount that you get on top of your policy which is tax-deferred. This can be borrowed against by the policyholder and the beneficiaries will still receive death benefits when the insured dies as long as the premiums have been paid.
Universal life is more flexible
Universal life insurance, on the other hand, is more flexible than whole life insurance. Policyholders are allowed to change their death benefits more easily. Similar to whole life, you also get cash value on top of your policy. Here, the policy holder can make adjustments based on changing circumstances, premiums may increase or decrease depending on the policyholder. The policyholder can also use the cash value to pay for the premium, in the event that they are unable to pay. You can also withdraw the cash value without applied penalties. You can also surrender the policy and get the equivalent of your cash value after the first 15 years. One thing to watch out for with this type of insurance is the market interest rates; you see, low rates secure your policy while high rates may make you lose some or all of your cash value, depending on the circumstances.
If you are concerned for your loved ones, you may choose a steady and less complicated type of insurance. You may be paying for a higher premium, but at least you know that your beneficiaries are protected with the whole life insurance policy. Which would best meet your needs, Whole life or Universal Life Insurance?