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Search For IUL Experts. Receive The Best Advice.IUL Experts can help you determine if indexed universal life insurance is right for you or if you should look for alternatives. The Best Advice Creates The Best Results.We Welcome Your Feedback!Feedback We Welcome Your Feedback!At IUL, we’re constantly improving
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Pros | Cons |
---|---|
Cash value component grows over time with option to take a loan or withdraw | Premiums can be expensive for larger amounts of coverage |
Premiums are locked-in for life | Best purchased when young to get low, manageable rates |
Ability to cancel policy and receive portion of cash value | Guaranteed cash value growth is low compared to other investment vehicles |
Cancellation fees can be high, determined by life insurance company |
Pros and cons of universal life insurance
Pros | Cons |
---|---|
Flexibility with premiums | Premiums can be expensive for larger amounts of coverage |
Can be cheaper than whole life insurance | More fees |
Can adjust death benefit up or down if needed | No dividend option with index universal life |
Borrow or withdraw funds from cash value | May require medical exam to increase death benefit amount |
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.