Many people get confused between whole life insurance and universal life insurance. Whole life insurance and universal life insurance are often confused as the same type of insurance policy. In truth, whole life insurance is a different type of policy than the universal life insurance. In whole life insurance, you must pay a premium fee that is set by the insurance company. If you continue to pay your premium on time, your beneficiaries will receive the benefits after you passed away. The earnings you make in the whole life insurance depend on how much returns the insurance company make from the investment. The premium fee of the whole life insurance is determined by the long term interest rate and other factors.
In universal life insurance, the buyer has the option to set the premium fee and the amount of death benefit. Many buyers choose to set low premium fee for the universal life insurance. Therefore, universal life insurance is cheaper than whole life insurance during the period when the interest rate is high. You can make adjustment to the interest fee you pay on the universal life insurance policy. The cash value and death benefit in a universal life insurance is not guaranteed. The downside of whole life insurance is that you cannot adjust the premium fee. For example, if you are in a tight budget, you cannot lower the premium rate of the whole life insurance.
The performance of the policy depend different types of variable investments such as mutual funds, bonds and etc. Universal life insurance, is like the term life insurance, because it only covers the policy buyer for a period of time. It has a cash value account, where the insurer derives money to pay for the insurance cost. You must never let your universal life insurance policy lapse for too long otherwise you won’t be able to get back any return.
