Why Buy Universal Over Whole

Although universal life insurance has been around for just a fraction of the time that whole life has existed, it has become a much more popular form of life insurance for people looking for permanent coverage. For people who want absolute guarantees, no risk and lifelong life insurance protection, whole life still presents the best alternative. Universal life was created to meet the demands of consumers who weren’t as interested in complete assurances as they were with getting more competitive returns on their cash value and having some flexibility in managing their life insurance protection.

Both whole life and universal life have a place among the growing populace that prefers permanent life insurance protection over temporary, or term coverage. Determining which is most suitable for any particular person comes down to personal preferences, risk tolerance, and desire for control.  A whole life policy is generally more suitable for people who need the maximum amount of assurance that the policy will perform as stated and who desire more predictability. A universal life policy is most suitable for people who are willing to assume a small amount of risk for a better return on their money and who prefer to exercise some control over the performance of the policy.

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5 Reasons You May Prefer Universal over Whole Life

You’re Willing to Assume Some Risk

People who are willing to assume some risk do so because they want to be able to earn a higher rate of return.  Unlike a whole life policy, wherein the cash value growth is guaranteed, a universal life policy has a separate interest bearing account that earns interest based on prevailing market rates. The rates fluctuate so they can go up as interest rates rise, and they can also go down.  In essence, the policyholder takes on the interest rate risk for the prospect of earning higher returns when interest rates rise.

You Like to Look Under the Hood

One of the frustrations of a whole life policy is that it is not very transparent as to how all of the components work.  That’s because the life insurer has bundled them all up so that they can provide maximum guarantees as to the performance of the policy. If you’re the type, and many people are, that likes to see how things actually work, or you simple desire more transparency in your financial products, the universal life policy is your best choice.  The components, such as cash value, expenses and the face amount are all unbundled and managed separately providing complete disclosure as to how each component is performing.  Each year, a statement provides details on all of the internal transactions that occur inside the policy.

You Like Lower Premium Payments

It’s no secret that universal life premiums tend to be lower than whole life premiums.  To a great extent, the difference in the pricing is in the way the policies are structured.  Whole life premiums are fixed, level and guaranteed. They are based on a guaranteed, and somewhat low, rate of return. The tradeoff is that the premium amount will never change.

The premiums for a universal life policy are also based on a rate of return that may be somewhat higher than the guaranteed rate of a whole life policy.  If rates were to drop significantly, the premium for the universal life policy could actually increase.  Also, if, for any reason, the cash value account doesn’t perform as projected, the policy may require additional premiums in order to maintain the face amount of the death benefit.

You Expect Your Needs to Change

Who can possibly predict their financial future? Throughout people’s lives they experience many events, some unexpected.  If you know that your financial situation will change and you want to have flexibility in the management of your finances, a universal life policy allows for some modification to adapt to changing circumstances.  Premium payments can be adjusted to meet changing cash flow needs. The death benefit can be adjusted to reflect changing protection needs.  Cash value withdrawals can be made to cover unexpected expenses. Unlike a whole life policy, which is fixed and rigid, a universal life policy can be a valuable financial management tool that can be shaped to fit an evolving financial life.

You Want to be in Control

More a sign of the times than a personal reflection, people today feel the need to have more of a say in their financial matters. Certainly more so than past generations who were probably more accepting of rigid and nontransparent whole life policies. People today want more transparency, and they also want to have more control over the outcome of their investments.  While it is very probable that many people will buy a universal life policy and never make a single modification to it, they are more satisfied knowing that they could if they wanted to.  Knowing that they can adjust the premium payment or have access to their cash value, brings comfort to people who like to feel in control of their financial matters.


Universal life certainly shook up the insurance industry when it was introduced a few decades ago and it awoke new generations of people to the value of life insurance as a financial management tool.  While whole life insurance is still the coverage of choice for people who value stability and predictability, universal life reflects a growing part of society that values control, flexibility, mobility, transparency and are willing to assume a little risk to have their money work a little harder.

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