Difference Between Universal Life & Whole Life Insurance

by Cynthia Myers, studioD

Many people buy life insurance because it pays a benefit to their heirs after they pass away. But some life insurance policies also have an investment component, allowing you the option of cashing in the policy and receiving the cash value of the policy, which can include interest and dividends. Two types of life insurance policies that provide the option of cashing in the policy at a later date before you die are universal life and whole life. Each policy has advantages and benefits for the insured.

Universal Life

Universal life insurance, also known as flexible premium insurance, is a type of life insurance where the buyer may elect the amount of coverage, the size of the premiums and the size of the cash value. Part of each premium goes into savings, the death benefit and administrative costs. Universal life policies are also cash value policies, which means that you can cash them in before your death. Some universal life policies pay a guaranteed return, while others fluctuate with the financial climate.

Whole Life

Whole life insurance policies remain in force through a person’s whole life, as long as the premiums are paid each month. This differentiates the policy from a term life insurance policy, which is only in force for a specified period of time. Whole life policies are either participating, which means they pay dividends, or non-participating, which means they don't pay dividends. When a policy pays dividends, you may have the option of taking the dividends in cash and applying them toward future premiums, or letting the dividends accumulate and earn interest.


With a whole life policy, you are locked into paying set premiums for the life of the policy. The insurer sets a schedule of payments when you purchase the policy. These payments may be subject to change as you grow older, or they may remain the same for the life of the policy or for your life. Universal life allows you to adjust your premium payments, within certain parameters set by the insurer. You can adjust the policy to meet different needs at different times of your life. But when you adjust one aspect of the policy, you also adjust other aspects. For example, lowering the premium you pay also lowers the amount of coverage and the cash value.

Stopping Payments

If you stop making payments on a whole life policy, the policy is cancelled. If you stop making payments on a universal life policy, the insurer will apply the accumulated savings toward premiums until there are no savings left. As long as there is enough money in the savings portion of the account to make the monthly premium payments, the life insurance remains in effect.

Cash Value

Both whole life and universal life insurance policies typically have no cash surrender value for the first three to five years of the policy. After that, their cash value may fluctuate with interest rates or the earning power of the investments into which the savings portion of the policies is invested. Adjusting the premiums of the universal life policy can lower the cash value of the policy. If you use part of the cash value to pay premiums, you could end up with no cash value.

About the Author

Cynthia Myers is the author of numerous novels and her nonfiction work has appeared in publications ranging from "Historic Traveler" to "Texas Highways" to "Medical Practice Management." She has a degree in economics from Sam Houston State University.

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