Whole life vs universal life

Whole life

Fixed premium, guaranteed death benefit, and guaranteed minimum cash value growth on a contractual schedule. Participating policies from mutual insurers may also pay dividends, which are not guaranteed.

The insurer carries the performance risk. You get predictability, and you pay for it — whole life generally costs more per dollar of death benefit than universal life.

Universal life

Adjustable premiums within limits, and cash value that depends on credited interest less the cost of insurance and expenses, both of which move over time.

You carry more of the performance risk. Underfunding, or crediting below what was illustrated, can require higher premiums later or cause a lapse.

How to choose

• You want certainty and won't monitor a policy — whole life
• Your income varies and premium flexibility matters — universal life
• You want the lowest cost for a guaranteed permanent death benefit — guaranteed universal life
• You want guaranteed cash value growth you can plan around — whole life
• You want index-linked or market-linked crediting and accept the risk — indexed or variable universal life

Common to both

• Substantially higher cost per dollar of death benefit than term
• Surrender charges for a number of years after issue
• Loans against cash value reduce the death benefit if unpaid
• Little value if surrendered in the early years
• Worth reviewing periodically, universal life more urgently

Before either

Confirm the need is genuinely permanent. If it ends — a mortgage, children reaching independence — term does the same job for considerably less, and the difference is real money over decades.