Universal Life Insurance vs. Whole Life Insurance

When you compare different life insurance plans, you may inevitably come across different types of policies like whole life insurance and universal life insurance. If you are a first-time buyer, it will help to know the differences to make an informed buying decision.As the name suggests, a whole life insurance policy provides coverage for as long as you live. On the other hand, a universal life insurance policy is known for offering more flexibility to the policyholders. Both these types of policies are permanent life insurance, which means they have a cash component. This means a part of the premium you pay for the policy is directed towards investments in conservative instruments that pay dividends. You can withdraw the dividends every year, or let them accrue. Let us look at the features of both these types of life insurance policies.

A whole life insurance policy is a type of permanent insurance plan specially designed to provide coverage for your entire life. As long as you keep paying the premium on time, rest assured you will get protection till your demise. Many people prefer buying whole insurance as it provides a fixed death benefit at a consistent premium.The premium amount for a whole life insurance policy remains the same throughout the policy tenure. This means you know exactly the amount you must pay every month, and you can plan your monthly budget accordingly. Also, since the payout is fixed, you can plan your investments well to accomplish your long-term financial goals.

The Universal Life Insurance policy, which is also commonly referred to as the ‘adjustable life insurance’ policy, is known for offering better flexibility to the policyholders to increase or decrease the death benefit. If you wish to increase the sum assured, you must undergo a medical examination at approved health centres to prove that you are physically fit and do not carry any underlying risk of critical illness.Depending on your financial standing, you can lower the sum assured value of the policy by paying the surrender charges (as applicable). Another significant feature that distinguishes it from the whole life insurance policy is that it allows you to pay the premium at any time as per your convenience after paying the first premium. The plan also allows you to pay the premium in a lump sum and make partial withdrawals.One of the drawbacks of a universal life insurance policy is that if the investments perform well, you can expect to get valuable returns. If the investments don’t perform well, you may find yourself paying a high premium to keep up the cash value.
Now that you are aware of the features of whole life insurance and universal life insurance, you make the right buying decision to suit your specific needs and purpose.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.