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Difference between Whole Life and Universal Life Insurance

Nov 27, 2019 | 4 months ago | Read Time: 3 minutes | By iKnowledge Team
Difference between Whole Life and Universal Life Insurance


The insurance sector is brimming with jargons and terms that can confuse a layperson. Sometimes two terms sound very similar but mean opposite things; at other times there is a very slight but pertinent distinction. If you want to make an informed choice about the kind of life insurance you want to get for yourself, it is important to understand these terms. 

The insurance papers are so full of terminologies and often, legal narratives that it is impossible to tell what some terms connote. One thing you cannot, however, choose to ignore is the very personality of the policy you take. 

Here is an example: Whole Life insurance and Universal life insurance sound very synonymous, if seen from a linguistic perspective. But they have very varied connotations. Let us break that down for you.

What is Whole Life Insurance

Under whole life insurance, you are covered for as long as you live. This means that you pay the premium for only a specific period, but the death benefit is valid for the rest of your life. This policy feature makes it suitable for someone who wants to be stress-free about how their partner, kids or dependents will provide for themselves in the unfortunate event of the policyholder’s demise. 

Whole life insurance combines the element of insurance cover with savings. So, unlike a term life insurance, it comes with an investment component – part of your money (the premium you pay) goes into a high-interest account. These savings accumulate here – and are available to be drawn into when you surrender the policy, or to borrow against if the need arises. The savings sit there on a tax-deferred basis. 

Whole life insurance intends to serve your long-term goals – for as long as you live. Since it provides more than just an insurance cover, you pay higher premiums than simple term insurance, and this amount goes towards the loan and dividend benefits etc., making it relatively expensive. 

What is Universal Life Insurance

Sometimes referred to as ‘adjustable life insurance’, Universal Life Insurance distinguishes itself from whole life insurance based on its flexibility.  This flexibility extends to the liberty to reduce or increase your death benefit. To increase your insurance cover, you need to undergo a medical examination. On the other hand, it also allows you to decrease the cover without surrendering the policy by paying certain surrender charges. 

You are also allowed to pay your premiums at any time and via flexible amounts after the first premium payment. You can even pay a lump sum. You are also allowed to make partial withdrawals, although repeated withdrawals are not recommended. The investment component works the same way here too.

The catch with Universal Life Insurance is on this investment front – if the policy is performing well then you can expect growth. Otherwise, you will find yourself pumping in a lot in the form of premiums to keep up the cash-value account. Surrender charges are also levied if you choose to surrender the policy. The main strength of Universal Life Insurance is in its flexibility.  

The Difference Between Whole Life and Universal Life Insurance

It is easy to get confused between Whole life policy and Universal Life Insurance policies since they are both, broadly speaking, permanent life policies with a protection component and an investment component built-in. 

Because of the cash value, the premiums can be slightly higher than the term life insurance. But that also makes it a more robust income replacement for your beneficiaries in case of any eventuality.

The difference between the two policies is in the flexibility and consistency that they offer. 

Which is Right for You?

The choice between Whole Life Policy and Universal life Insurance is solely dependent on what you prefer – consistency or flexibility. If you seek consistency and want to know what your payouts would be worth, then you should be prepared to shelve out premium payments for a whole life policy. If you want flexibility – whether it is about changing your policy to suit your financial situation or about the payments you make, Universal Life Insurance is our cup of tea. 

To know about Aegon Life’s life insurance products like term insurance and other products, visit our home page.


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