What is the difference between whole life and variable universal life?

These policies are have common aspects like cash value, but they are very different. A whole life is a much more conservative product without a large upside potential. However, in a Variable Universal Life, you will have a better chance of lapsing the policy. As we mentioned, lapsing is when you do not have enough cash to sustain the policy.

So a simple breakdown will be:

• VUL has more much more upside potential
• VUL has a higher risk
• VUL has more flexibility
• Whole Life has more guarantees

If you want higher potential but are willing to have a higher risk then you can get a Variable Universal Life quote here:

What’s The Difference Between a VUL and an IUL?

The main difference between these two universal life policies is how they treat the downside and the upside of the investments.

Index universal life or Indexed Universal Life (IUL) has downside protection.

Also, indexed universal life can have a cap on how much money you can make on your investments. While a variable universal doesn’t limit how much upside you have. While variable universal life doesn’t. Here is an article comparing a Whole Life Insurance vs IUL.

Be Careful with Unrealistic Projections 

Variable universal life is often sold to unsuspecting customers through promises of unrealistic projects. Agents tell prospects something like this:

“All you have to do is purchase a VUL policy, and the money will grow tax-deferred. You have the option to choose how to invest. It’s sort of like an IRA, just better. When you need the money, you can borrow from the policy, tax-free. And of course, when you pass on, your beneficiaries also receive the money tax-free.”

When put like this, it’s hard to imagine anyone would pass by variable universal life insurance.

Unfortunately, there are many problems with this arrangement, including the fact that there are high fees and expenses associated with this type of policy.

Furthermore, if you attempt to get out of the policy before five years, you lose most (or all) of the money put in as a “surrender charge.” This alone keeps people tied up with a policy they don’t want, all the while costing them money in fees every year. 

Surrender Value 

As noted above, surrender charges often come into play if you try to cancel a variable universal life policy.

Take, for example, a situation in which you purchase a $500,000 VUL policy. You read over your contract to find that after 15 years, the surrender charge is 25 percent. What this means is simple: if you try to cancel your policy at this time, the insurance company will charge you 25 percent of the cash value, thus making your surrender value much less than what you initially believed.

There are two things you need to know:

• Surrender charges can last as long as 15 years
• Whole life insurance doesn’t have a surrender charge 

Conclusion 

With whole life insurance, you get what you see. This is the most common permanent life insurance coverage, with many consumers enjoying the fixed premium and death benefit, along with the ability to accumulate cash value.

Variable Universal life insurance is an idea to consider, especially if you are interested in something with more flexibility. And you would like to have a higher upside growth on your cash value, but remember this:

It’s risky to access the cash value if you want to keep your death benefit in place.

Many people have lost almost all of the money they put into a policy. All because they didn’t understand what they were getting into upfront.

You can only make an informed decision after you compare every type of life insurance policy. In the end, you’ll probably find that whole life coverage is the safest and most stable option.

If You Have A VUL contact us immediately for a quick analysis.

You don’t want your insurance and your investment to disappear.

Whole and universal life insurance are two different types of permanent life policies, which means they’re designed to stay in force for the insured’s entire life and they come with a cash value account in addition to a death benefit. Whole and universal life policies are generally much more expensive than term life insurance policies, since they don’t expire and the insurance company has an almost certain probability of paying out the death benefit as long as premiums are paid. While whole and universal life are both classified as a permanent policy, they differ in important ways.

The main difference between whole and universal life insurance is that universal life policies offer greater choice and flexibility when it comes to investing the money in the policy’s cash value account, deciding premium payments and choosing death benefit amounts. Whole and universal policies are nuanced, so you may want to research each type carefully to decide which option is right for you.

Whole life vs. universal life

Whole and universal life policies have certain similarities. Both policies offer permanent life insurance coverage with a cash value portion that you can borrow against, use to pay premiums or withdraw. If you cancel either life insurance policy, you will typically be refunded a portion of the cash value up to the amount of premiums paid in after any charges or fees are paid. With both policies, the money in the cash value account can usually be invested to earn returns and/or interest.

However, there are some key differences between whole life vs universal life. With a whole life policy, policyholders are locked into a set premium and death benefit amount. Universal life policies, on the other hand, typically allow policyholders to adjust the amount they pay in premiums and the amount of their death benefit, as long as certain criteria are met. In addition, universal life cash value accounts are typically higher risk and higher reward than whole life policies. With whole life insurance policies, dividends from your cash value account investments are usually guaranteed but capped, which limits the amount of returns a policyholder can make. Universal life cash value accounts typically do not cap the amount of returns a policyholder can make unless it is a fixed product, but do not guarantee returns either. In this way, it’s possible for universal life policyholders to either gain or lose money on their cash value accounts.

Pros and cons of whole life insurance

Pros and cons of universal life insurance

An important step of the research process is understanding each product line in greater depth. Learning more about whole and universal life insurance in the sections below may help you make an informed decision.

Whole life insurance

Whole life is a type of permanent life insurance that provides a death benefit to your beneficiary for your entire life in most circumstances. The premium you get approved for when you initially sign up for whole life insurance is locked in for life in most circumstances and will never increase.

This type of permanent life insurance also includes a cash value component. Part of your premium payments go into this cash value account which builds, tax-deferred, in the policy over time. Once you meet a minimum required cash value, you can choose to borrow some as a loan or withdraw it, which may have tax implications.

Though it’s not guaranteed, the cash value could pay out dividends, which you can choose to keep or reinvest into the policy to allow the cash value component to grow, reduce your premiums or pay for more coverage. If you cancel or surrender the whole life policy, you are eligible to keep the cash value in the policy, up to the limits of premiums you’ve paid in, minus any fees set by the life insurance company.

Universal life insurance

Universal life insurance is also a type of permanent life insurance. Like whole life, universal life offers permanent coverage (in most circumstances) and the ability to grow cash value over time. When comparing whole life versus universal life, universal life insurance has more flexibility with premium payments and death benefits.

When applying for universal life insurance, you have more options than with whole life insurance. You can choose a level premium and death benefit or an adjustable plan, which allows you to raise or lower premiums and death benefit, as long as certain minimums are met first. Once cash value has grown in the policy, you can also choose to use it to pay premiums.

Like whole life, universal life insurance policies have guaranteed minimum cash value growth potential set by the insurance company. Others, called index universal life, are tied to a stock market index, which can allow cash value to grow faster but also runs the risk of losing value. Some companies have loss prevention built in, where you will not lose money, but your return is often limited to a certain annual percentage and you may not gain any value with indexed universal life insurance.

How do I choose between whole life and universal life?

When choosing between whole and universal life, you may want to focus on the key differences between these life insurance policies. When it comes to the cash value account, would you rather have the stability of guaranteed returns with whole life insurance? Or would you prefer the higher risk, higher reward aspect of universal life cash value accounts which may generate much higher or lower returns? Would you like your policy to maintain fixed premiums and death benefit amounts as with whole life, or would you prefer the flexibility of changing your premium and death benefit amounts as with universal life? A certified financial planner or other qualified financial advisor may be able to help you decide which of these products is right for you. Once you’ve decided on whole or universal life, an independent insurance agent can help you choose a life insurance provider.

Frequently asked questions

• • With a policy that builds cash value over time, it can be tempting to cancel the policy and take the cash value. If you no longer need life insurance, cashing out your universal life insurance policy is an option. But if you still have a need for life insurance, consider taking a loan against the cash value instead if you just need the cash. This way, the life insurance stays in force and you get the cash infusion you need now. Reviewing any actions with an agent is an important step, as life insurance loans can be complex.

  • Some families choose to purchase children’s life insurance for their kids. While child mortality rates in the United States are low, families may decide to purchase this coverage to make their child more insurable in the future. By purchasing life insurance young, children are able to lock in low rates that they may be able to keep even if they develop a health issue in the future.