Whole Life vs Universal Life Insurance

  1. Whole life vs universal insurance definition
  2. What is the difference between whole and universal life insurance?
  3. Whole life vs universal life comparison
  4. Whole life vs universal life insurance pros and cons
  5. Which is better, whole life or universal life insurance?
  6. Cost of whole life insurance vs universal insurance?
  7. How does whole life and universal life insurance treat smokers?
  8. Who offers whole and / or universal life insurance?
  9. What other life insurance options are out there?

Whole life versus universal life insurance. We know there is lots of information out there, but it is difficult to find a direct, in-depth comparison all on one page. We’ve done the research for you and explained it all here so you can make an informed choice.

Ready? Let’s get started…

Whole life vs universal insurance definition

Whole and universal life insurance are permanent insurance policies. This means, as long as they are in force they don’t need to be renewed – they do not expire. Both also have a cash savings component to help you build and manage wealth.

What is the difference between whole and universal life insurance?

The main difference between whole and universal life are seen in the way the cash account is handled. You will provide a fixed premium that is shared between the cost of insurance and the cash savings account for whole life, and your investment in the cash account is guaranteed. To access your cash, you can surrender the policy or leverage it as a loan.

On the other hand, universal life insurance has no guarantees. Your investment is more at risk. Your premium is also not fixed. You have a minimum and maximum that you can contribute. The minimum only covers the cost of insurance. You must contribute more than the minimum and up to the maximum to fund your cash savings account. However, the cash account is far more flexible than with whole life insurance – you can withdraw the cash or use it to support the policy’s premium. Remember, however, that removing all your cash and letting the policy lapse leaves you without coverage.

Let’s dive into a deeper comparison.

Whole Life Insurance Universal Life Insurance
Whole life insurance fills two financial needs: lifelong coverage that does not expire and a tax advantaged savings account.

The savings account invests your cash, giving you an asset you can access by surrendering (terminating) the policy. Alternately you can use the cash as collateral for a loan.

Universal life insurance also fills two financial needs in that you get lifelong coverage and a tax advantaged savings account. The main differences from whole life are that the cash account is much more accessible, you are required to manage the policy hands-on, the investment is not guaranteed, and you have a range (min/max) instead of a fixed premium.

Typically, universal’s cost of insurance (minimum premium) is cheaper than whole life’s premium.

This chart illustrates more main differences between the two products.

Whole Life Insurance Universal Life Insurance
Coverage length
Premiums comparison
Premiums at renewal
Cash accumulation

Whole life vs universal life comparison

To make the ideal choice between whole and universal life insurance, you must be aware of several things. We’ve detailed these points in the chart below. Pay special attention to the investment management portion. One requires you to have a more active role in the investment management.

Whole Life Insurance Universal Life Insurance
Coverage length Life long Life long
Insurance coverage Yes Yes
Cash accumulation i.e. policy has a cash value Yes Yes
Can choose amounts going into insurance and cash accumulation Yes Yes
Eligibility for dividends Yes No
Investment management Investments are managed on behalf of a policyholder, no need to get involved Investments can be managed by policyholder, requires understanding of markets
Premiums Typically, flat premiums (also called level premiums) Flexible premiums
Tax advantage Yes. Your investment grows tax free as long as you do not contravene the maximum tax accrual rules (MTAR) limit. If you do, your investment will attract tax. Cash value withdrawals are not always tax free. Speak with your advisor if you wish to access the cash. Yes. Your investment grows tax free as long as you do not contravene the maximum tax accrual rules (MTAR) limit. If you do, your investment will attract tax. Cash value withdrawals are not always tax free. Speak with your advisor if you wish to access the cash. The cash withdrawal can affect how much is given to your beneficiaries.

Whole life vs universal life insurance pros and cons

As with every insurance policy, there are pros and cons to consider. Let’s start with the pros.

Whole Life Insurance Universal Life Insurance
No investment experience required. The investment portion is managed on your behalf. Investment flexibility. For those that like to be more actively involved in the investment process, universal life allows you to manage the cash account.
Fixed premium. You know what you are putting in each month. Premium contribution flexibility. Ideal for those with freelance or commission income, flexible contributions allow you to match your input to the month’s budget needs.
Wealth management. Whole life helps high income earners manage their wealth and their life insurance in a very convenient way. Potentially lower premiums. Since you can choose the amounts you contribute, universal life often costs less than whole life.

Both policies have their advantages, but there are some drawbacks to consider.

Whole Life Insurance Universal Life Insurance
Investment preference. You do not have control over the investment portion, therefore are limited in the management of it. This could be an issue if there are particular things in which you wish to invest. Investment experience is required. Having more control over the investment portion is great – unless you have no investment experience. Then you could be missing out on gains.
Cost. Because of the guarantees, whole life insurance is one of the most expensive products on the market. Potential exposure to stock market. The investment is not guaranteed and can dip based on stock market performance.
Long range plan. The investment grows slower than other options and to get the most out of it, you must leave it alone for a number of years. Careful planning. It’s easy to tap into the savings account when you have an emergency (which is a pro at the time!) so if you were planning to let it grow to the support the policy, you may need to adjust your budget.

Which is better, whole life or universal life insurance?

One is not better than the other. Both speak to the individual investor’s risk tolerance and desire to be hands on or hands off. From a purely practical standpoint, universal life tends to be cheaper, but it comes with a higher risk and more hands-on involvement. If you are undecided about which policy is best, speak with a broker. They will help you identify your risk factors and risk tolerance, then match you with a policy – either whole life or universal – that is best suited for your needs.

Go for Whole Life Insurance if you want Go for Universal Life Insurance if you want
Coverage that doesn’t expire Coverage that doesn’t expire
Premiums that never change Flexible, adjustable premiums
Professionally handed policy and investment Hands-on policy and investment management
Professionally monitored, decisions made on your behalf regarding the investment You make the decisions about your investment and how to manage the policy

Cost of whole life insurance vs universal insurance?

When talking about the cost of whole life insurance vs universal life insurance, it is not necessarily an apples-to-apples comparison. Whole life has a fixed premium where universal life does not. Let’s take a look at some whole life numbers, then consider them against the flexible premium of universal life.

$300,00 coverage for the following scenarios Whole Life Insurance Universal Life Insurance
30 year-old male, non-smoker, no health pre-conditions $155 / month The premium is not fixed. You are allocated a minimum that supports the cost of insurance, and a maximum with the amount over the cost funding the savings account. Universal life insurance minimums are typically lower than whole life premiums.
40 year-old female, smoker, no health pre-conditions $213 / month
50 year-old male, non-smoker, no health preconditions $390 / month
60 year-old female, smoker, no health pre-conditions $565 / month

How does whole life and universal life insurance treat smokers?

No matter what policy you choose, if you are a smoker you are looking at higher rates – sometimes even double the rate of a non-smoker. This is because smoking is a risk on every level. It impacts and shortens your health and it can start a fire in your home. If you smoke when you obtain the policy but quit and remain a non-smoker for a number of months, you can talk to your advisor to see if a reduced rate is possible.

Who offers whole and / or universal life insurance?

Whole and universal life insurance is offered through major Canadian insurance companies like Sun Life, Manulife and Equitable Life. These policies have very specific requirements in order to remain tax compliant, and to properly assess your long-term needs. Always work with an experienced professional when setting up permanent insurance.

What other life insurance options are out there?

There is another option for those that want permanent insurance for a lower cost. Term 100 covers you to age 100 with pure insurance. This means there are no extras – you get a premium that does not expire but there is no cash savings account.

Your email address will not be published. Required fields are marked *