Permanent life insurance is an umbrella term for several different types of life insurance policies that never expire and come with a cash value component. Three of the most common types are whole life insurance, universal life insurance, and guaranteed universal life insurance.
All three policy types come with a permanent death benefit payout your beneficiaries receive when you die. The main difference between them is how the cash value grows in value and how you can customize your premiums.
What is whole life insurance?
Whole life insurance is a type of permanent life insurance that never expires and comes with a cash value that earns interest at a rate set by your insurer. You’ll pay the same amount in premiums for the lifetime of the policy.
Whole life insurance can be a good fit for high-net-worth individuals with either long-term financial obligations who want a guaranteed savings vehicle or who are looking to use life insurance to diversify their investment portfolio. Or, if you’re looking to offset estate tax, whole life provides a guaranteed death benefit as long as you pay your premiums to keep the policy active
→ Read more about the cost of whole life insurance
What is universal life insurance?
Universal life insurance has a cash value component that gains interest at a rate tied to the current market, with a minimum interest rate. After building enough cash value, you can use those funds to pay your premiums, which makes this type of policy unique. You can benefit from flexible premiums, but you may also have to pay more for your policy as time goes on.
Because of the risk associated with changing interest rates, universal policies are usually best for high-net-worth individuals with specific tax or investment needs. If you’re already maximizing contributions to tax-advantaged accounts like a Roth IRA or 401(k) and willing to take on more investment risk, universal life insurance might work for you.
What is guaranteed universal life insurance?
Guaranteed universal life insurance (GUL) is one of the most affordable forms of permanent life insurance. You’ll pay fixed premiums regardless of how market indexes perform since your plan’s interest rates are factored into the premiums when you sign up for the policy. But what makes GUL unique is that it builds very little cash value and has a no-lapse guarantee, meaning that as long as you pay your premiums, you’ll have coverage, regardless of how the market performs.
If building cash value isn’t a main priority of yours and you’d rather have a guaranteed, permanent death benefit, GUL might work for you.
Comparing whole life vs. universal life vs. guaranteed universal life insurance
Policy feature | Whole life insurance | Universal life insurance | Guaranteed universal life insurance |
Permanent death benefit | Yes | Yes | Yes |
Fixed payments | Yes | No | Yes |
Cash value accumulation | Yes, at a fixed rate | Yes, can be tied to the stock market | Yes, but minimal cash value growth |
Price | $$$ | $$$ | $$ |
Good for | People focused on estate planning or leaving an inheritance | People who can take on increased investment risk | People who need to guarantee a permanent benefit, like for a lifelong dependent |
How the cash value works in GUL, whole, and universal life insurance
Whole life insurance, universal life insurance, and GUL all have a cash value component. Each month, a certain portion of the premium you pay to keep the policy active goes into a tax-deferred savings account, known as the cash value of the policy. The exact amount that goes into savings — and how it grows — is determined by your individual policy.
The cash value of whole life insurance typically grows at a fixed rate, while the cash value of universal life insurance often comes with higher risk and higher growth potential. On the other hand, GUL policies accumulate little to no cash value.
Which costs more, whole life, universal life, or GUL?
Whole life insurance typically costs more because it comes with a guaranteed death benefit and a fixed interest rate — so the policyholder takes on less investment risk.
Since a standard universal life insurance policy has flexible premiums, rates depend on the terms of the policy, and can vary drastically based on the choices you make. Universal life insurance premiums typically increase as time goes on, so initially, the cost might resemble those in the GUL column below ($100 to $200 per month for $500,000 worth of coverage), but those premiums could double or triple over the course of the policy.
When applying for universal life insurance, you’ll need to connect with a licensed agent to have a more in-depth conversation about your monthly budget and coverage needs, so you can get an accurate price estimate.
Guaranteed universal life insurance, on the other hand, has fixed premiums, so it’s simple to figure out how much you’d pay month over month. Below is a comparison of whole life insurance rates versus guaranteed universal life insurance rates.
Monthly rates for a $500,000 whole life insurance policy vs. a $500,000 guaranteed universal life insurance policy
Age | Gender | $500,000 whole life insurance policy | $500,000 guaranteed universal life insurance policy |
20 | Female | $290 | $104.50 |
Male | $347 | $126 | |
30 | Female | $414.50 | $152.50 |
Male | $487 | $177 | |
40 | Female | $605.50 | $244 |
Male | $737 | $279.50 | |
50 | Female | $957 | $589 |
Male | $1,134.50 | $667.50 |
Methodology: Sample monthly rates are calculated based on male and female non-smokers in a Preferred health classification, obtaining a $500,000 cash value whole life insurance policy from MassMutual and a $500,000 guaranteed universal life insurance policy through Pacific Life. Rates may vary by insurer, term, coverage amount, health class, and state. Not all policies in all states. Rate illustration valid as of 01/01/2024.
Which is better: whole life insurance, universal life insurance, or GUL?
Deciding which permanent life insurance product is best for you will depend on your specific financial goals and circumstances.
If your goal is to guarantee an inheritance for your beneficiaries or pay off estate tax, for example, whole life insurance may be a fit for you.
If you’d prefer to have flexible premiums and you have a higher degree of risk tolerance, universal life insurance may be a better fit.
If you’re not as interested in cash value accumulation but want to guarantee a death benefit for a dependent, GUL may be a good option for you.
Permanent life insurance vs. term life insurance
On the other hand, if your primary goal is to provide a financial safety net for your family during your peak earning years at the cheapest possible cost, you may not need permanent life insurance coverage at all — a term life insurance policy may work better for you instead.
Term life insurance is one of the most affordable policy options and is easy to manage — it doesn’t have any complex tax restrictions or limitations. Term life lasts for a set period of time — usually between 10 and 30 years — during the period of your life when you have the biggest expenses — like paying off a mortgage or raising children — and then expires.
No matter your circumstances, it’s important to discuss with a financial advisor and insurance professional before purchasing a permanent life insurance policy. Premiums can be steep and you could end up paying extra fees if you decide you can’t keep the policy beyond a few years.
Read more about the differences between permanent and term life insurance
