What is the Difference between – Whole Life & Universal Life Insurance?

The best protection that one can get from life risks is by investing in a good insurance policy. While there are different types of policy in the market that one can opt for, there is only one type of policy that offers great financial protection from life risks. This policy is the life insurance policy.

While many people usually opt for the traditional policies, there are different types of policies available in the market. Two such policies are whole life insurance and universal life insurance. What are the differences between these policies? Which one should you opt for? Read more to find out.

What is life insurance?

A life insurance policy is a type of policy in which the insurer financially compensates the beneficiaries of the insurer. This compensation is provided in the event of the policyholder’s untimely demise. After the claim has been approved, the insurer gives the life cover amount to the family of the insured. This amount helps in managing vital expenses and in securing a financially safe future for the beneficiaries.

What is whole life insurance?

As the name suggests, this policy keeps the policyholder insured as long as they live. This policy has a fixed premium and a fixed tenure for the payment of the premium. This means there is no risk of facing an increase in the premium. Even if the policyholder passes away mid-term, their beneficiaries will be compensated by the insurer.

What is universal life insurance?

This policy also offers coverage to the insured as long as they live. However, in this policy, the insured has the option of either increasing or decreasing the life cover amount. This can be done at different life stages where the requirements of the policyholder might change. The premium required to increase the life cover can be decided by the policyholder as per their need.

What are the differences between the two?

Listed below are the major differences between these two types of policies:

  1. In whole life insurance, the premium amount is fixed. This means that the insured will not be required to pay extra premium at any point of the term. On the other hand, with universal life insurance, you have the option of increasing or decreasing your premium to adjust your life cover. However, you might be required to go through medical evaluation if you want to increase the cover.
  2. In whole life insurance, the coverage offered is fixed and it cannot be increased or decreased at any life stage. This option is there in universal life insurance. The coverage ca be increased, however, the premium required for increasing the premium could cost you a lot as there is a limit is set by the insurer. If you want to increase the coverage, you will have to pay extra premium beyond that limit.
  3. A portion of the premium in whole life insurance goes into an account that offers high interest. However, the interest accumulated could be less. In whole life insurance, a portion of the premium goes into a savings account. However, the returns are subject to market-risks. This means that you could either get good returns or lower returns.

Which insurance policy should you opt for?

The decision of purchasing a policy is based on individual needs. If you are looking for a policy that has a fixed premium amount with a fixed cover amount, whole life insurance may be for you. It will be suitable for those who are looking for affordable life insurance without facing any financial burden.

On the other hand, if you wish to increase the life cover of your policy after some time and can manage to pay the amount required for that, you should opt for universal life insurance. Do keep in mind that the premiums are costly for this policy and a medical re-evaluation could be required.

Before you make a decision about which policy you should opt for, you can use the life insurance premium calculator. The calculator would give you an idea about which policy requires how much premium as per your needs.