When I bring up universal life (UL) people naturally ask, “What’s the difference between whole life and universal life? One thing is for certain: whole life builds guaranteed cash value. A $100,000 whole life policy taken out today is generally guaranteed to “endow” be worth $100,000 in cash value at age 120. Pay your premium on time and whole life is also guaranteed for life.
Universal Life (UL) is an apt name because, like the universe, it structure goes all over the place. If you purchased a UL from 1980 to 2000, I strongly recommend you let an agent review it, because no telling how well it’s orbiting. It could be headed for the sun, i.e. destruction, so pull out the latest annual statement, if you got one, and call an agent or the carrier.
Those of you who purchased anything between 1980 and 2000, that was not term, should heed this advice and have your policy reviewed. Most so-called permanent policies sold at that time were most likely a UL. They were less expensive and promised better returns. But if you ask a 1980’s or ’90’s policy holder, they think they have whole life, and it’s guaranteed for life. Not so! You need a close look at the policy, an annual statement or in force illustration to find out.
After about 2000, the life insurance industry came out with a rock solid product called guaranteed ULs (G-UL) or no-lapse UL’s: pay your premium on time and the policy lasts to whatever year set, like age 121. This G-UL lifetime guarantee is like a whole life’s lifetime guarantee. But a (G-UL) doesn’t build much cash value, so it’s low orbit, miss payments can cause it to come crashing down to earth, i.e. lapse. I highly recommend guaranteed ULs for someone in their 60’s or 70’s. Just pay your money on time and the benefit is guaranteed for a set period of time. You can easily set it to at least age 110.
For someone in their 40’s or 50’s, I generally recommend a regular UL. It’s interest sensitive, so it builds cash value. Pump sufficient premium into your UL ,and it should last a lifetime. You got to watch it though. The difference between a whole life and a regular UL is sort of like the difference between driving a car and being chauffeured by a limousine. Driving a car requires a bit more attention. A UL’s gas is premium. The carrier’s interest contributions is the oil. The gas tank is cash value. If the regular UL gas tank goes empty, has zero cash value, the car quits. (With a G-UL you don’t have to worry about zero cash value, if you pay your premium on time.) If you set it up correctly and you watch it over the years, with the help of your trustworthy agent, it should serve you well. (Those who purchased UL’s in the 80’s and 90’s often, ominously, haven’t checked the oil or know how the gas tank works.)
The difference between whole life and UL is mainly about price and guarantees. UL’s have a much better price. Once you’ve reached your 40’s, a whole life’s price, for a decent sized policy, generally becomes out of reach. You take a UL, understand how it basically runs, like one does a car, and you can manage it quite well for your journey towards the horizon.