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Author: jamtumblr Published: 2008-09-28 13:22:31 Last edit: 2008-10-06 21:09:11 Tags: life insurance universal insurance whole insurance |
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Universal Life Insurance versus Whole Life Insurance
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Universal life insurance and whole life insurance are both variations of a permanent life insurance policy, offering insurance coverage throughout the policyholder’s lifetime. The policy remains in force as long as the premiums are paid. The advantage of such insurance is the savings component of the policy, which allows one to accrue cash value.
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Whole life insurance offers fixed and predictable premiums throughout the term of the policy and ensures guaranteed death benefits. Although the premiums might be higher than those charged for term policies, the cash value component accrues on a regular basis as dividends or interest, not only enhancing the value of the policy but also adding to the accessible cash amount and death benefits.
Universal life insurance entails some advantages over the whole life policy because it separates three components of the policy – the death benefit, the cash value and the expense element. This allows for greater flexibility in the policy terms and the policyholder can modify the terms according to his/her needs, such as setting the premium amount, altering the death benefits or choosing to withdraw the interest or dividends on the cash value for use in later life.
Both whole life and universal life policies have four basic parts in common – the mortality cost that determines the death benefits; administrative charges including the costs, taxes and premium that is incurred by the insurance company in managing the policy; the savings component or the cash value that is accumulated after all mortality costs and administrative charges are paid; and the return on investment or the interest credited to the policy’s cash value each year.
On the other hand, whole life and universal life policies differ in some basic ways as well:
- While the premiums for whole life policies are fixed and cannot be altered till the policy is fully paid for, universal life policies allow the policyholder to modify the premium amount and the timing of payment.
- The death benefits set by a whole life policy are also fixed at a particular amount at the time that the policy is taken. Universal life policies allow modifications in the amount of death benefit even at later stages during the term of the policy.
- Whole life policies do not need to disclose the mortality or administrative costs to the policyholder. The cash value or savings element is, however, determined by the return on the savings after these costs are paid for.
- If you choose a whole life policy, you will also not have the freedom to choose where the money is invested or the rate of interest on the investment.
- Universal life policies not only disclose the mortality and administrative costs, they also ensure interest sensitive investments, where the policyholder can benefit from increases in the interest rates of the money market.
- Universal life insurance also allows one to put in excess cash while the policy is in force in order to enhance the cash value of the policy.
While choosing a permanent life insurance policy, it is important to assess whether you are more comfortable with fixed premium amounts and death benefits or whether you would prefer to have a more flexible policy. The crucial thing to remember in a flexible universal life policy is that one needs to monitor the policy regularly to ensure that it is giving you the best options.
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