Whole Life, Term, Or Universal Life Insurance - How to Determine What's Best For You

A whole life insurance policy covers you for your entire life. Your death benefit and premium in most cases remain the same. Whole life also builds cash value, which is a return on a portion of your premiums that the insurance company invests. Your cash value is tax-deferred until you withdraw it and you can borrow against it.

A whole life insurance policy may be used as a part of your estate planning. Consequently, whole life insurance is a good choice for you if you want to ensure that you have a life insurance policy in place for your entire lifetime and can comfortably afford the premiums, of if it fits within the framework of your estate or retirement plan.

Whole Life Insurance
While whole life insurance is designed to provide coverage on the insured for the insured's entire life as long as the premiums are paid and the policy has not been surrendered, term life insurance provides coverage only for a fixed period that is stated in the policy. It can be for one year or up to thirty years. Term insurance premiums are extremely affordable for a person in good health up the age of fifty. After that age, the premiums start to get progressively more expensive. Term should be purchased if you only need insurance for a specific period of time, such as if you want an outstanding fifteen or thirty year mortgage balance paid off in the event of an untimely death.

Universal Life
Universal life is a type of flexible permanent life insurance offering the low-cost protection of term life insurance as well as a savings element, like whole life insurance, which is invested to provide a cash value buildup. The death benefit, savings element and premiums can be reviewed and altered as a policyholder's circumstances change. In addition, unlike whole life insurance, universal life insurance allows the policyholder to use the interest from his or her accumulated savings to help pay premiums.

Universal life insurance was created to provide more flexibility than whole life insurance by allowing the policy owner to shift money between the insurance and savings components of the policy. Premiums, which are variable, are broken down by the insurance company into insurance and savings, allowing the policy owner to make adjustments based on their individual circumstances. For example, if the savings portion is earning a low return, it can be used instead of external funds to pay the premiums.

Unlike whole life insurance, universal life allows the cash value of investments to grow at a variable rate that is adjusted monthly. As an example, the Indexed Universal Life may base the performance of its cash values on one of several indices, including the S & P 500 or the Dow Jones Industrial Averages. Moreover while it provides an opportunity for growth, it has guaranteed returns and provides considerable stability. In that it provides both growth potential and a safety net, it is excellent for college planning or retirement supplemental planning.