Understanding Universal Life Insurance and Participating Whole Life Insurance
When it comes to life insurance, you have different options to choose from, term insurance and permanent insurance. Within these two domains, permanent insurance falls into three categories, Universal Life Insurance, Participating Whole Life Insurance and Non-participating Whole Life Insurance. Of the permanent life insurances, the two popular choices are Universal Life Insurance and Participating Whole Life Insurance. Many people like to use permanent life insurance as an asset class to diversify their portfolio, in addition to covering their final expenses liability. Let's break down what each of these is, their pros and cons, and how they differ from each other in simple terms.
Universal Life Insurance
Pros:
Flexible Payments: You can change how much you pay and even adjust the amount your family will get when you pass away.
Builds Cash Value: Over time, your policy builds up some cash that earns interest. You can borrow or withdraw this money if needed.
Investment Options: You get to choose where the cash value is invested, potentially growing your money more.
Tax Benefits: The money your policy earns grows without being taxed, and the death benefit is usually tax-free.
Cons:
Complicated: Understanding all the options and how it works can be tricky.
Risk of Losing the Policy: If the cash value isn't enough to cover costs, you could lose the insurance.
Uncertain Growth: The cash value depends on the market, which can go up or down.
Higher Fees: This type of insurance often comes with more fees.
Participating Whole Life Insurance
Pros:
Guaranteed Benefits: The death benefit and cash value growth are guaranteed, making it a stable choice.
Dividends: You might get extra money (dividends) that you can use to reduce premiums, buy more coverage, or let it grow with interest.
Cash Value Growth: Your policy builds cash value that you can borrow or withdraw.
Lifelong Coverage: As long as you pay your premiums, you're covered for life.
Cons:
Higher Premiums: You'll usually pay more for this type of insurance.
Less Flexibility: You can't change your payments or benefits as easily as with Universal Life Insurance.
Lower Returns: The guaranteed cash value growth is often less compared to Universal Life Insurance.
Complex Dividends: Understanding how dividends work can be confusing.
Key Differences
Flexibility
Universal Life Insurance: You can change how much you pay and adjust benefits.
Participating Whole Life Insurance: Payments and benefits are fixed.
Cash Value Growth
Universal Life Insurance: Growth depends on your investment choices and the market.
Participating Whole Life Insurance: Growth is guaranteed and might include dividends.
Premiums
Universal Life Insurance: Payments can be adjusted.
Participating Whole Life Insurance: Payments are fixed but higher.
Risk
Universal Life Insurance: Tied to market performance, so there’s more risk.
Participating Whole Life Insurance: More stable with guaranteed growth.
Conclusion
Both Universal Life Insurance and Participating Whole Life Insurance have their benefits, but they suit different needs. Universal Life Insurance is good for those who want flexibility and potentially higher returns, even though it’s riskier and more complex. Participating Whole Life Insurance is ideal for those who prefer stability and guaranteed growth, despite higher premiums and less flexibility. Knowing these differences can help you choose the best option for your financial goals and comfort with risk.
To help determine which is best for you, reach out to us and we will help you get the perfect solution. As a broker, we get to shop around and find the best carrier for you.
Carriers to consider for each product
Universal life insurance
Industrial Alliance
Ivari
RBC
Participating Whole Life Insurance
Industrial Alliance
Serenia Life Financial
Canada Life
Equitable Life
Empire Life