Suppose you’re looking for insurance that covers life. In that case, you’re likely already overwhelmed by the number of options available and perhaps the terms used too! However, determining which plan best suits your needs starts by understanding the basics, and you’re at the right place!
We’ll discuss two types of life insurance: universal and whole life. We’ll focus on their differences and similarities.
What Are Universal and Whole Life Plans?
Universal and whole life plans are kinds of life insurance permanent in contrast to short-term life insurance plans. Universal and whole-life insurance plans have the following features in common:
- Contrary to this, the term life insurance policies have a specific amount of time. They do not require renewal: If you’re paying the premiums, your coverage will last all your life. It pays out when you die.
- There are usually two parts: An insurance portion and an investment or savings.
- Based on the amount they accumulate, depending on their accrued value, you could recover any cash value of the policies when you decide to cancel their policies. You may also be able to use their cash value to borrow.
- Any gains made inside the policy, whether from investment within the policy or dividends, are tax-sheltered. The two types of insurance policies permit the accumulation of wealth without tax.
What Is the Difference Between Universal Plans and Whole Life?
Despite their similarity, universal life and unlimited plans differ sufficiently to make each method suitable for a particular kind of policyholder.
In general, whole life insurance gives more stability and stability and is, therefore, more expensive. The universal life insurance policy is flexible and generally more affordable.
The differences between universal life insurance and whole life insurance policies get categorized into four groups:
1: Premiums
Whole life plans come with fixed prices that do not change.
Universal life insurance payments are flexible. You get to decide when and how much to contribute. The only restriction is that the contributions must be sufficient to cover the insurance costs. If not, your insurance company will use the funds in the investment portion of the account to protect your insurance. The process will continue until your account gets depleted completely, after which your insurance will cease to be covered.
2: Face value
The value of face value of all life insurance policies isn’t affected. Still, you can buy additional insurance should you require it.
You can alter the amount of Universal Life insurance policies without having to cancel or repurchase the coverage. If you reduce the value of your face, your minimum contribution will be less. It can be beneficial in situations where your requirements and responsibilities change.
3: Cash Value
Because your insurance provider will put a portion of every premium payment into an investment or savings account, the cash value of your life insurance policy increases steadily over time. As a result, you can take out loans using the policy’s cash value. Also, you can end your policy and receive your cash amount. Although this leaves you without insurance, it could benefit an emergency or unexpected cash expenditure.
Universal life insurance policies build up cash value if you put in over the required. You can withdraw cash from the balance or take a loan from it, but with the caveat that emptying the account means you will not be covered. Similar to universal life insurance policies, you may use the cash value from the universal life policy as collateral for loans.
4: Dividends and Interest
Suppose you purchase a whole life insurance plan. In that case, the contract will stipulate the minimum interest rate applicable to the cash part of the account. Your policy could also contain dividends, which you may take out as cash or invest into the policy.
Universal life insurance plans do not guarantee a return, as returns get determined by your performance on the investments your insurance company creates.
Which Is More Beneficial: Whole Life Insurance or Universal Life Insurance?
Several factors determine how much control you want over your investments, including your age and number of dependents, risk tolerance, and immediate and long-term financial needs. Consult a financial planner, or insurance adviser is a wise method if you’re uncertain about what option is best for you.
Ottawa Life Insurance offers life insurance that will meet your family’s needs throughout your life. We’re eager to help prepare your family for a safe, secure future! Don’t hesitate to contact us at (613) 454-1424 or email info@ottawa-lifeinsurance.ca with any questions about insurance.
Recent Comments