Universal vs. Whole Life Insurance: What Are the Main Differences?

A couple on a bridge smiles while looking into the distance.

While you have several options when buying permanent life insurance, the decision often comes down to two popular types of policies: universal vs. whole life insurance. Both provide financial security for your loved ones while enabling you to build savings for your own needs. But some key differences can affect your premiums and how your money grows over time.

Here’s what you need to know about each type of coverage so you can choose what’s best for you.

What Is Whole Life Insurance?

Whole life is permanent life insurance that provides a guaranteed death benefit for your heirs. As long as you pay the premiums, your beneficiaries will receive a cash payout from your policy, which they can use to help manage their current and future expenses. This feature separates permanent life insurance from term life insurance, which expires after a certain number of years.

Most whole life insurance policies offer level premiums for life, which means your insurance costs remain steady—even during periods of inflation.

Whole life insurance also comes with a savings feature you can access through policy loans or withdrawals during your lifetime. Part of each premium you pay helps cover the cost of paying out insurance claims, while another portion helps build cash value within your policy. The insurer regularly credits your cash balance with a fixed interest rate, providing predictable growth regardless of economic conditions. Keep in mind that any withdrawals or loans you don’t repay will reduce the death benefit for your heirs.

Because whole life policies offer lifetime coverage and a cash value component, they typically cost more than term policies with the same face value. However, they enable you to create a source of wealth you can turn to if you incur a large expense, lose a job, or even decide to start a business. Some whole life products—known as participating policies—even allow you to earn dividends, although they generally cost more than nonparticipating policies.

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What Is Universal Life Insurance?

Like whole life insurance, universal life is permanent coverage that remains in force for as long as you pay the premiums. It also has a cash value feature that allows you to access money from your policy whenever you have a financial need. However, universal life differs from whole life coverage in a few important ways.

Unlike the level premiums in a whole life product, universal life policies allow you to adjust your payments as your needs change (within certain thresholds). Most policies also give you the freedom to increase your death benefit if you need more insurance, though some insurers require you to undergo additional underwriting if you decide to boost your coverage.

Additionally, how your cash value grows is different from a whole life policy. Instead of receiving a fixed return for your policy’s duration, the interest rate fluctuates based on changes to a benchmark rate. As a result, you may be able to earn more if interest rates rise across the economy. But you also face the risk that rates will drop and reduce the growth of your cash balance.

In general, universal life policies have lower initial costs than comparable whole life policies. However, your premiums usually increase as you get older, which means universal life policies aren’t always a more affordable option in the long term.

Which Type of Coverage Is Best for You?

Choosing between universal vs. whole life insurance ultimately comes down to your financial situation and what you value most.

When You May Want Whole Life Insurance

Whole life policies may be a better option if you don’t want to leave anything to chance. You know what your premiums will be for as long as you keep the policy in force. And you know the interest rate you’ll earn on the cash value you accumulate, regardless of what happens in the markets.

When You May Want Universal Life Insurance

Universal life insurance may better suit your needs if you want more flexibility. You can adjust your premiums over time, which may help if your income fluctuates or you lack job security. This coverage can also work well if you’re relatively young and expect to have more room in your budget as you get older. Universal life allows you to get more affordable permanent coverage in the short term, knowing you can purchase additional coverage later.

This chart can help you visualize the similarities and differences between the two policy types:


Whole Life

Universal Life

Coverage length

Life of the insured

Life of the insured

Death benefit


Adjustable based on changing financial needs


Fixed for the policy’s duration


Cash value

Grows at a guaranteed interest rate

Grows at a variable interest rate that fluctuates based on market conditions


Initially higher than universal life

Initially lower than whole life but may increase in later years

Ensuring Financial Security for Your Loved Ones

Permanent life insurance enables you to protect your family or business while building savings you can access yourself. The coverage whole and universal life policies provide can give you (and your loved ones) valuable peace of mind.

That said, whole life policies, in particular, can be a great option if you want the predictability of level premiums and a guaranteed death benefit. And by purchasing guaranteed acceptance life insurance, you can get coverage without a medical exam.

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