Whole life vs. universal life vs. guaranteed universal life insurance

Our comparison guide to three of the most common permanent life insurance types: whole life, universal life, and guaranteed universal life.

Nupur Gambhir

Nupur Gambhir

Published March 11, 2020


  • Whole life insurance is a type of permanent life insurance that lasts your entire life and comes with a cash value component

  • You can withdraw from the cash value component of a whole policy while you are still alive, though this decreases the death benefit

  • The cash value of a universal life insurance policy accumulates interested based on the current market rate, which in turn affects how much you pay for your premiums

  • How much you pay for guaranteed life insurance is determined by the interest rate at the time that you signed for your policy

Permanent life insurance offers coverage that does not expire, provided you paid your premiums on time. Permanent life insurance, like other kinds of life insurance, protects your family from the risk of financial difficulty should you die an untimely death. Term life insurance is the most popular kind of life insurance and only lasts for a specified time period called the term. Permanent life insurance lasts until you die.

Permanent life insurance is actually an umbrella term for several different subtypes of life insurance. Three of the most common are whole life insurance, universal life insurance, and guaranteed universal life insurance. Each one lasts until you die; two of them also have a cash-value component that gains interest and helps support or even increase the death benefit. As with other types of life insurance, you keep your permanent life insurance in force by paying monthly or annual premiums.

The main difference between the three types is how the cash-value component grows in value and what your premiums cover. You may find that you get a better return on investment with different premium structures across the three subtypes.

What is the cash-value component?

Whole life insurance and universal life insurance both 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 is determined by your individual policy.) The policy's cash value grows over time.

Depending on your policy and how much cash value it’s built up, you may be able to use the cash value to pay your premiums, or take out a low-interest loan against your policy. However, both of these options come with some risk: if you die before you repay your loan, the amount you owe will be deducted from your death benefit. And if you use up all of your policy’s cash value to pay your premiums, your policy will lapse.

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Types of permanent life insurance at a glance

Each subtype of permanent life insurance offers different features. See the table below for the features of each. The rest of this article will go into more detail about each.

Whole Life InsuranceUniversal Life InsuranceGuaranteed Universal Life Insurance
No-lapse guarantee.Your policy will be in effect as long as you make premium payments.YesNoYes
Cash-value accumulation.Your policy accumulates a cash value that can be withdrawn or used as a loan.YesYesNo
Paid up at a specific age.You only need to pay premiums up to a certain age.YesNoYes
Benefit amount increases.Your policy's cash-value interest can be added to the death benefit.YesNoNo

Whole life insurance

Most people get term life insurance, where you get life insurance for a predetermined number of years and pay premiums during that time. With whole life insurance, you only have to pay your premiums for a limited time, and in return you get coverage for life. Your beneficiaries are guaranteed to receive a death benefit when you die.

The cash-value component of a whole life insurance policy pays out dividends, although they’re not guaranteed. The dividends are reinvested back into the cash value, essentially paying for an increase in the death benefit if you don’t use the cash value while alive. This gives whole life insurance a “no-lapse,” in that as long you or your policy’s cash value is paying your premiums, your coverage won’t expire.

Because you pay for the whole life policy with after-tax dollars, you can withdraw from the cash value tax-free when you retire. By then, you’ll have less of a need for a large death benefit anyway, as you’ll have fewer dependents or other people who rely on you financially.

If you do decide to draw on the cash value, you may have to pay taxes on it, but if your premiums are all paid up, you won’t pay a surrender charge.

Whole life insurance premiums are paid either until a certain age or for a set number of years, and your rate will be affected by the option you choose. However, once you lock in that rate, it will be the same throughout the whole time you pay premiums.

A whole life policy you take out at age 30 and for which you have to pay premiums until age 65 costs on average about $122 per month. It’s lower -- $99 per month – if you go with a plan that requires you to pay premiums until age 99. So-called “10 Pay” and “20 Pay” whole life policies where you pay premiums for 10 or 20 years, respectively, cost a 30-year-old on average $239 per month for the 10-year payment plan and $145 per month for the 20-year payment plan. But at the end of each payment period, you have coverage for the rest of your life.

Whole life premium rates payable until age 65


Whole life premium rates payable until age 99


Whole life premium rates payable until age 121


10 Pay whole life insurance rates


20 Pay whole life insurance rates


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Universal life insurance

Universal life insurance was created at a time when interest rates were much higher than they are today. The idea behind them is that their cash-value component accumulates interest at a rate tied to market indexes.

The interest goes toward reducing your premiums, with the excess amount, after funding the cash-value and the carrier’s take, going to a modest increase in the growth of the cash value.

When rates were high, this made a lot of sense – you pay lower premiums to get the same amount of cash value or slightly better. However, if the interest rate goes down, your premiums could go up as the life insurance company has to put more money in to maintain the policy’s cash-value component. That means people who took out universal life insurance coverage in the 1980s and 1990s, when interest rates hit their peak, saw their premiums gradually increase and potentially become unaffordable.

Like whole life insurance, if you stop paying your premiums, the death benefit will be supported by the cash-value component. But this reduces the death benefit and could completely deplete it if you don’t resume paying your premiums. While life insurance is generally used as a hedge against risk – if you die when the policy is in force, your beneficiaries get a death benefit – universal life insurance potentially increases your risk.

For that reason, universal life insurance is less expensive than whole life insurance. A 30-year-old may pay on average about $42 per month in premiums as an initial rate, but the rate will almost certainly fluctuate.

Universal life insurance rates


Guaranteed universal life insurance

Guaranteed universal life insurance takes the concept of universal life insurance but removes the market risk aspect of it. Your premiums stay the same regardless of how market indexes perform as your plan’s interest rates are baked into the premiums when you sign up for the policy. This type of life insurance has a “no-lapse” guarantee, meaning that as long as you pay your premiums, you’ll have coverage.

This also means, however, that your policy may not have any cash value at all. There’s nothing to support the death benefit if you stop paying your premiums, although as long as you keep up to date, the death benefit also won’t decrease, as happens with universal life insurance.

In that way, guaranteed universal life insurance most closely resembles term life insurance. Term life insurance only covers you for a set number of years, usually 20 or 30. You pay your premiums for that time and get coverage only for that time, unless you stop paying your premiums. At the end of the term, you are no longer covered, but you also are probably close to retirement and don’t need as much coverage anyway.

Guaranteed universal life insurance is for people who do need that coverage later in life. In that sense, guaranteed universal life insurance is like a term life insurance policy where the term lasts the rest of your life. On average, a 30-year-old applicant can expect to pay $54 per month for coverage.

Guaranteed universal life insurance rates