Comparing Whole Life and Universal Life (UL) Insurance

ByReid Chessell Estate Planning, Independent Life Insurance

When deciding between Whole Life and Universal Life insurance, understanding both the similarities and differences is key to determining which policy best suits your needs.

How are they similar?

Both Whole Life and UL insurance are types of permanent life insurance, providing coverage for the insured’s entire lifetime.  They build varying amounts of cash value over time and all growth occurs tax exempt.  Also, within a corporation policy proceeds create a capital dividend account credit. Additionally, both policies can be funded over the insured’s lifetime or through a condensed pay period, often 10 or 20 years.

How do they differ?

Whole Life

  • Growing Cash and Death Benefits: Provides a guaranteed death benefit and cash value that grows over time based on annual tax-exempt policy dividends.  Policy dividends arise from long term investment gains, mortality gains (or losses) and, policy lapses less operating costs.
  • Investment Management: Funds are managed by the insurance company, typically in a conservative manner, ensuring stability and predictability for the policyholder.

UL

  • Flexibility and Customization: Offers a flexible death benefit and premium structure, adaptable to the policyholder’s changing needs, particularly advantageous for those with a known estate liquidity need.  An example would be estate taxes on frozen preferred shares.
  • Guaranteed Options: Provides fully guaranteed death benefits and premiums, making it cost-effective for guaranteed permanent insurance.  The insurance company takes on all the financial risk of turning the premiums into the face value of the policy.
  • Investment Choices: Where overfunding is desired, UL policyholders can customize their investment mix, offering control over a more aggressive or conservative investment strategy, unlike Whole Life where investments are managed entirely by the insurance company.

Making the Right Choice

Choosing between Whole Life and UL insurance depends on individual circumstances and financial goals. At Leyland & Matters Private Client Insurance Advisors, we can help you understand the options and determine which policy is right for your family or business. Our expertise ensures that you make an informed decision that aligns with your long-term financial planning needs.

We’re here to help you provide the very best in estate planning advise to your clients. Reach out to us anytime at 905-331-2885.