Whole Life or Universal Life?

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Universal life was created in part to deal with some of the shortcomings of traditional whole life insurance. Whole life insurance, as the name implies, provides insurance for the insured’s lifetime. The premiums are also level, and the plan provides guaranteed cash values. Whole life policies can be divided into two categories: participating policies, where the policy owner participates in the insurance company’s profits and the plan pays out a dividend; and non-participating policies, which are lower in cost and do not pay out a dividend.

The primary disadvantage of whole life insurance is its failure to disclose how the premium is allocated between the cost of insurance, administration costs and the investment portion. Also, they do not offer the variety of investment choices found in universal life plans.

Universal life offers unbundled insurance—the policies separate out the life insurance, administration fees, premium tax and investment charges. But in many cases this separation can create further complexity. Most universal policies have multiple cost of insurance options. They offer an increasing cost of insurance structure which results in lower risk charges in the early policy years but higher costs in the later years, and a level cost of insurance structure which generates higher initial charges but the rates are level for life. The investment choices can also also vary widely, from no-risk guaranteed certificates to high-risk accounts linked to growth-oriented equity funds. AIG’s Universal Life plan has over 400 investment accounts, so you had better choose a broker who knows his/her stuff.

Universal life policies also offer flexible premiums, a choice of level or increasing death benefits, and the ability to take premium holidays if you have to stop paying your premiums in the later policy years. One caveat to beware of is that many universal life policies have surrender charges if you want to access your cash value within the first ten policy years.

Whole life policies have fewer options. The premiums are fixed and cannot be increased or decreased by the insurance company or the policy owner—some may view this as an advantage, while others may prefer more flexibility. The investment return on a participating whole life policy is linked to the profitability of the insurance company and long-term interest rates. It should be noted that while the dividend rates on most participating whole life policies have declined with the slide in interest rates, the yield in most instances is still significantly higher than found with similar low-risk universal life accounts.

The majority of non-participating whole life policies are fully guaranteed contracts. The premiums, pay periods and cash values are all contractually stated and cannot be altered by the insurance company. However, these policies produce very little cash value in the early years, so it is crucial that the policy owner be committed to this policy over the long haul before signing up.


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  1. Jordan Smith 07/28/2008 at 8:05 pm

    Would you recommend Universal Life or Whole Life insurance for a 20 year old?

  2. LSM Insurance 07/28/2008 at 8:16 pm

    Hi Jordan,

    Thanks for your comment. The first step in the right plan to choose is determining what you want the insurance for. If you are looking to cover a temporary need like a mortgage or business loan a Term policy may better suit your need.

    Assuming you have a Permament need and want a Permanent policy the type of Permanent policy you should chhose will depend on how much control and risk you want in the plan. Universal Life offers more flexibility and control but the policy returns are non guaranteed and can flucuate widly among certain equity based accounts.

    Whole Life policies offer more guarantees but less flexibility. For policies with smaller face amounts a Whole Life policy would likely make more sense because the policy fees are generally lower and thus will be a smaller percentage of the premium. Please let me know if I can help out further.

    Regards … Lorne

  3. Natalie 03/20/2009 at 1:59 pm

    What if you have a life insurance policy with A.I.G.? Is it safe? Should I cancel it? Do I get my money back? I am very confused. Please advise. Thanks, Natalie Hayward

  4. LSM Insurance 03/20/2009 at 2:30 pm

    Hi Natalie,

    Thanks for the note. I would not be quick to cancel your AIG policy. It may have many benefits which are difficult to replace in a new plan. The article below will provide you with some useful insights in making your decision.

    link to lsminsurance.ca

    You can also call me directly at 905.248.4849 if you would like discuss your situation in more detail. Regards … Lorne

  5. faye 07/05/2009 at 11:16 am

    female 49 nonsmoker good health condition
    already have 80000 dollars life insurance coverage
    now think of adding more The budget is within 1200 dollars paid per year.
    what kind of insurance policy will be more appropriate

  6. LSM Insurance 07/05/2009 at 12:38 pm

    Thanks for the question. The type of plan depends on your long term objective and risk tolerance. I will send you a separate email shortly. Regards … Lorne

  7. Moe 07/31/2009 at 1:22 pm

    Hi Lorne,
    I am thinking of getting a Universal life insurance policy. Per my research Canada life, Manulife and Sunlife have better ratings. However, they have higher cost of insurance hence less contribution to the investment account. Other companies like Transamerica or Equitable have much lower cost of insurance, increase death benefit but have lower ratings. How should I make my decision of which company to go for? Moreover, how much avg. return is earned in a universal life policy? Is there any guaranteed source available?

  8. Fred 11/13/2009 at 12:32 pm

    Thinking of buying a Universal Life for my wife with coverage until age 88 for USD 1 million. Initially thought of getting TransAce due to its lower premium upfront, but was advised to do SunLife instead due to its higher cash value over time albeit higher premium upfront. I myself already have coverage under …. of upto 100 yrs for …… Which one should I get for my wife ? …. or ….. The thought is to leave something for the kids when we passed away. However, can we use this as our Pension plan as well during the old days ?
    Very much appreciate your help


  9. LSM Insurance 11/13/2009 at 3:05 pm

    Thanks for the note. There are a number of variables which need to be examined to determine which Universal Life plan is best:

    Cost of insurance
    Investment options
    Strength on the insurer
    Available riders
    Underwriting guideline

    We will send you a separate email now.

  10. Gorav 02/14/2010 at 9:08 pm

    I am single salaried person with my wife and 2 kids 7year and 3 year.

    I want pure life insurance death benefit so i can support my family, If i am not there.
    so I need ur expertise to finalised best policy with least expensive , I don’t want as an investment only to insure my life.

    My question is which policy is beeter for me, I want to pay in 20years even for whole life for eg-

    1. 20 year term policy with cover 850000 premium is 560/year

    2. Universal plan 200000 for whole life +650000 rider for 20years-premium will 140/month and will pay in 20 years.
    3. term plan 100 ( I have no idea but looks good)

    4. whole life policy

    and how is Equitable as a company.

  11. LSM Insurance 02/15/2010 at 4:20 pm

    Hi Gorav,

    Thanks for the note – the short answer is each plan has it’s plus and minuses it depends on your situation and your needs. If you want a short term policy with no investment component a Term plan is the way to go. Equitable Life is a sound and reputable company.

    We are happy to assist further.

  12. Graeme 07/31/2010 at 12:00 am

    I can answer all of those people:

    Buy a Term policy, invest the difference in a high-return mutual fund, and retire with a boatload of money!!!!

  13. LSM Insurance 08/12/2010 at 6:52 pm

    Thanks Graeme – but this does not solve the need of someone with a Permanent life insurance need.

  14. Eric 01/29/2011 at 10:32 am

    I just recently singed up for universal life insurance with La Capitale. I chose not to participate in the investment portion and just take part in the life insurance. Its a 15 year term with a face value of $300K.

    I’ve never really had life insurance because I believe it doesnt do anything for me right now because I’m single and I still live with my parents. My agents got me convinced to get insurance now so I can lock in the rate because when I decide to get insurance later on it might cost me more. I did not really get a chance to see what other insurance companies rates.

    My question is: have you ever heard of this (La Capitale) insurance provider? Also, my premium cost $l150/month, is that a reasonable rate?

  15. LSM Insurance 01/29/2011 at 11:58 am

    Hi Eric,

    Thanks for the note.

    We’re not sure what you mean by a Universal Life with a 15 year Term – do you mean paid up in 15 years? You can find out more details about La Capitale at link to lsminsurance.ca

    Its hard to say if you are getting a good deal without seeing the seeing the policy or knowing your date of birth or smoking status.

  16. Jenny 03/11/2011 at 10:28 pm

    I have a universal life insurance policy on my father…yeah i know sounds crazy eh! I pay 300 a month and the policy is for 250 000. I was advised to go this route as this type of a policy never terminates or payments never increase with the age of my father, as some policies are rising sky high with increasing age. What are your thoughts about Universal Policies…and are their risks?

  17. LSM Insurance 03/11/2011 at 11:14 pm

    Hi Jenny,

    I would make sure its a Universal Life policy with a level cost of insurance – meaning the cost of insurance does not increase as the insured gets older. These policies have an optional investment component that can range from guaranteed investments to more volatile equity based investments.

    As a point of interest Manulife, Canada Life, Equitable Life and Industrial Alliance have all recently raised the premiums on all new Universal Life Level Cost of Insurance Plans. You can get more details at link to lsminsurance.ca

  18. Fonz 04/12/2012 at 3:24 pm


    I have a question, I have UL policy ,,,,, . 10 yrs have gone by so now no surcharges will be issued. From my experience the cost of the investment portion are high and poor choice. I am wondering if I should cancel the policy and open another whole life policy or keep the UL and only pay the Cost Of Insurance with no investment amount. Please let me know your thoughts.

  19. LSM Insurance 04/12/2012 at 6:19 pm

    Thanks for the note. If it is a level cost Universal Life policy – it would likely make little sense to change – as I new plan would be much more. If it is an increasing cost policy there may be a conversion feature.

    As for the investment option – its hard to say without seeing your policy or your overall financial situatation.

  20. Greg 06/08/2012 at 1:16 pm

    When buying term insurance people. It is very important to look at the company’s coversion options. For example Great West Life might cost you a few more dollars a month for a term policy, but they have the best conversion options/products if you wish to convert in the future. Also you can buy a term 10 and convert it to a term 20 up to 5 years. Cheapest is very rarely the best.

  21. Greg 06/08/2012 at 1:22 pm

    Graeme; If you get into comparing Par vs term investing the difference, you will have a hard time. Especially when a good portfolio is well diversified – with a fixed income component. If you do the math on a 5 yr G.I.C rate right now and compare it to a par product you will find you are quite far off. Par Insurance should make up a component of your fixed income portfolio in my opinion 100 percent of the time (if you qualify)

  22. Gary 07/05/2012 at 12:03 am

    Hi I am 44 and my wife is 35 we have 2 kids gal 3 yrs and boy 1 yr, looking at both whole life and universal life for estate planning purposes – I get mixed ideas from 2 financial planners one recommends Ulife (last to die) as its flexible and low cost – however the person recommends a whole life – (last to die) policy, as dividends are much higher – however premiums are fixed and cannot be controled by me, however Universal you can pay up the policy in say 7-8 yrs and avoid paying any premiums
    any advise would be appreciated

  23. LSM Insurance 07/05/2012 at 4:52 am

    Hi Gary,

    Its hard to say which is best without looking deeper into your insurance and financial goals.

    On the surface you are correct the Whole Life policy should have more guarantees and less control by the policy owner.

    Whereas Universal Life offers less guarantees but more flexibility. You can set up a Universal Life plan with a guaranteed cost of insurance and guaranteed investment option.

  24. debra pasudag 09/23/2012 at 12:53 pm

    I already have a universal life policy but after doing some readings I saw participating whole life to be more attractive..please advice me I’m so confused!!!

  25. LSM Insurance 09/23/2012 at 3:55 pm

    If you took out the Universal Life policy a while ago, especially if it’s level cost of insurance it’s likely priced at a favourable rate compared to today’s rates. You should first verify if you can make any adjustments within your existing policy before making any changes.

  26. Pat 05/24/2017 at 10:12 pm

    A month ago took out universal life insurance $150K and had discussed static payments each month for 15 years then no more payments.I read the insurance document and it stipulates the it is yearly renewal term (premiums). I dont want premiums to ever go up. So am seriously considering cancelling in this new policy and opting for something else. Am i misinterpreting this wording in the contract ‘yearly renewal term’. Financial advisor not giving me a clear answer – to the question does this mean premiums can go up?

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