Universal Life Insurance Versus Whole Life Insurance―Which Is Better?

With whole life insurance, the insurance company takes the risk of making you a guarantee and then meeting that guarantee. The insurance company makes two guarantees:

1. that your premium stays the same during the life of the policy
2. to provide the guaranteed death benefit in the policy

Clearly, to a conservative insurance buyer, these guarantees are very useful. However if you as the buyer are willing to accept some variability, you may be able to get more insurance for the same premium dollars (or the same insurance for less premium). This is what universal life insurance provides. Here is a further comparison.

With a universal life insurance policy, part of your premium pays for the insurance and part goes into a side earnings account. Your premium is based on an estimate of how much the side earnings account will earn as that side account and its earnings are used to pay for your insurance together with the premiums you pay annually. Should the original earnings estimate on the side account fall short, you may need to increase your premiums to maintain the level of insurance you originally desired. Or you might need to settle for a smaller death benefit than you originally desired. On the other hand, if the insurance company's earnings exceed the original estimate, you may be able to stop paying premiums or you may be able to reduce your premiums or you may get more death benefit than you originally intended. So which is better-whole or universal?

There is no right or wrong answer as to whether universal or whole life insurance is better. Both are designed to provide permanent insurance that will last an entire lifetime. Whole life insurance offers the most conservative option with insurance company guarantees and universal life typically offers lower premiums and you as the insurance buyer accept some of the variability.