What Is the Difference Between Whole and Universal Life Insurance?

Whole life insurance plans come with a guaranteed accumulation of cash value and unchanging premiums, whereas universal plans include customizable death benefits, savings and premiums. Whole life insurance offers protection for as long as the policyholder lives, while universal plans have more flexibility.

With a whole life insurance plan, the policy provider places money in a high-interest bank account designed to increase the policyholder's cash value with each premium payment. It's best to secure a whole life insurance policy at a younger age so that payments remain affordable as the policyholder ages. Such policies are often used to take care of after-death expenses and provide a surviving spouse with income.

A universal insurance policyholder can adjust his death benefit as he chooses and pay premiums in any amount. Before increasing the plan's face value, the policyholder first has to pass a medical exam. The flexibility of the policy could be beneficial if the policyholder loses her job and needs to pay a lower monthly premium or wants to invest in something other than a life insurance policy. The ability to pay a lower monthly premium could free up some cash to invest in other financial endeavors. While there's no need to surrender the policy to lower coverage to the smallest amount, the policyholder may incur surrender charges against his plan's cash value.

When deciding between universal insurance and whole life insurance, it's best to speak with a reputable and experienced life insurance agent. Policyholders should also consider the needs of their families and their current state of health.