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.

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Nupur Gambhir

Nupur Gambhir

Senior Editor & Licensed Life Insurance Expert

Nupur Gambhir is a licensed life, health, and disability insurance expert and a former senior editor at Policygenius. Her insurance expertise has been featured in Bloomberg News, Forbes Advisor, CNET, Fortune, Slate, Real Simple, Lifehacker, The Financial Gym, and the end-of-life planning service Cake.

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Maria Filindras

Maria Filindras

Financial Advisor

Maria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

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Permanent life insurance is an umbrella term for several different subtypes of life insurance. Three of the most commonly bought are whole life insurance, universal life insurance, and guaranteed universal life insurance.

The main difference between the three types is how the cash value component grows in value and what your premiums cover.

Key takeaways

  • 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 interest based on the current market rate, which in turn affects how much you pay for your premiums.

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

How the cash value works in permanent life insurance

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 — and how it grows — is determined by your individual policy and policy type.

Each subtype of permanent life insurance offers different features. See the table below for details about how they treat policy lapses, cash-value accumulation, paying premiums, and increasing the death benefit. The rest of this article will go into more detail about each.

Policy feature

What it means

Whole life insurance

Universal life insurance

Guaranteed universal life insurance

No-lapse guarantee

Your policy will be in effect as long as you make premium payments.

Yes

No

Yes

Cash-value accumulation

Your policy accumulates a cash value that can be withdrawn or used as a loan.

Yes

Yes

Yes, but lower than other policy types and withdrawing could forfeit guarantee feature.

Paid up at a specific age

You only need to pay premiums up to a certain age.

Yes

No

Yes

Benefit amount increases

Your policy's cash-value interest can be added to the death benefit.

Yes, with the purchase of a rider.

Yes, with choice of this option.

No

Whole life insurance

Most people get term life insurance, where you are covered for a set number of years and pay premiums during that time. With whole life insurance, your policy lasts as long as you continue to pay premiums.

There are many options with what you can do with the cash-value component's dividends. You can receive them as cash or check, pre-pay future premiums, or purchase additional insurance, for example.

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Universal life insurance

Universal life insurance has a cash-value component that accumulates interest at a rate tied to the bond market, with a minimum interest rate. After a period of time, you can use your cash value to pay your premiums, which makes it unique among insurance policies. Because of the risk associated with changing interest rates, universal policies are best for high-net-worth individuals with very specific tax or investment needs.

Guaranteed universal life insurance

Guaranteed universal life insurance is one of the most affordable forms of permanent life insurance. Your premiums stay the same regardless of how market indexes perform since 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.

Frequently asked questions

What is whole life insurance?

Whole life insurance is a type of permanent life insurance with a cash value that grows tax-free over time.

What is universal life insurance?

Universal life insurance is a type of permanent life insurance where you can use the cash value growth to pay your policy's premiums.

What is guaranteed universal life insurance?

Guaranteed universal life insurance is a type of universal life insurance that has a no-lapse guarantee.

Author

Senior Editor & Licensed Life Insurance Expert

Nupur Gambhir

Senior Editor & Licensed Life Insurance Expert

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Nupur Gambhir is a licensed life, health, and disability insurance expert and a former senior editor at Policygenius. Her insurance expertise has been featured in Bloomberg News, Forbes Advisor, CNET, Fortune, Slate, Real Simple, Lifehacker, The Financial Gym, and the end-of-life planning service Cake.

Expert reviewer

Financial Advisor

Maria Filindras

Financial Advisor

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Maria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

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