The Single Best Life Insurance Policy You Haven’t Considered

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Your choice of life insurance isn’t just term life versus whole life. Here’s why it’s worth considering universal life insurance, too. 

If you want to buy life insurance to protect your loved ones in case of your death, a common debate is whether it’s better to get term life insurance or whole life insurance. Term life insurance offers financial protection for a specific amount of time, or “term” — such as 10 years, 20 years, or more. Whole life insurance, sometimes called permanent life insurance, is a life insurance policy that lasts for your “whole” (entire) life.

There are pros and cons to term life insurance and whole life insurance. Term life insurance tends to have the lowest-cost premiums, but it only lasts for a certain amount of time. Whole life insurance tends to be more expensive than term, but it lets you build cash value so you can earn money from your policy, while also protecting your loved ones in case of your death.

But what if there was another way to get some of the best aspects of both of these types of insurance? This other type of life insurance is called universal life insurance. You might not have considered universal life insurance, or maybe haven’t even heard of it. But this type of flexible life insurance policy offers some unique advantages that could make it the right choice for your personal finances.

Let’s see why universal life insurance should be on your radar if you’re shopping for life insurance in 2024.

What is universal life insurance?

Universal life insurance is a type of life insurance that provides coverage for your whole life (as long as you pay your premiums), with flexibility to make changes in the policy depending on your financial goals and family needs. Depending on which universal life insurance policy you choose, you can make adjustments to the amount of death benefit, how much you pay in premiums, and when you pay your premiums.

Like whole life insurance, most universal life insurance offers cash value as part of your policy. This gives you a combination of financial protection for your loved ones in case of your death, and the possibility of investment growth.

How universal life insurance helps your finances

Universal life insurance is not just a life insurance policy; it’s a flexible financial asset that can give you options for your personal finances. While a typical whole life insurance policy pays low interest and has a cash value that grows slowly over time, universal life insurance offers the chance of higher investment earnings. You can invest your universal life insurance policy’s cash value in a few different ways to try to get higher growth of your investments over the course of your life. And universal life insurance tends to cost less than whole life insurance.

With universal life insurance, you can also use your policy’s cash value anytime, for anything you want — often without owing taxes. You can take a loan from your policy’s cash value (while owing interest), or use your policy’s cash value as collateral for a bank loan. Think of universal life insurance as a flexible savings and investment account that also provides life insurance coverage. Depending on your stage of life and financial needs, universal life insurance could be a good addition to your investment portfolio.

Types of universal life insurance

Different life insurance companies might offer a few types of universal life insurance. Here are the most common types, in ascending order of flexibility and most investment options.

Guaranteed universal life insurance

This type of policy is the lowest-cost and simplest form of universal life insurance. With guaranteed universal life insurance, you get fixed premiums, but you won’t get cash value. (Without the cash value, you might want to consider term life insurance instead.)

Indexed universal life insurance

This kind of policy lets you put some of your cash value into an equity index account, which pays interest based on the performance of a market index that it tracks, such as the S&P 500. In case the index takes a loss during the year, you won’t earn any interest. But if your index performs well, your cash value can earn higher interest than you would get from a typical whole life insurance policy.

Variable universal life insurance

If you have a higher tolerance for investment risk, variable universal life insurance could be the best choice. This type of policy lets you invest your cash value in stocks, bonds, and ETFs. You get the potential for bigger investment gains, but you also have to accept the risk of investment loss; if the markets go down, your cash value could suffer losses, too. Variable universal life insurance might also be more expensive than other types of universal life insurance.

Who should choose universal life insurance

Universal life insurance can be a good choice for a few situations. Do any of these feel familiar?

You feel frustrated paying money every month for term life insurance and getting nothing in return, unless you die; it feels like you’re throwing money awayWhole life insurance seems stodgy and expensive; the cash value doesn’t grow enoughYou like the idea of getting additional savings and investment options as part of owning a life insurance policyYou want flexibility to change your life insurance policy’s details, such as a higher death benefit, or paying the premium from the policy’s cash value

Bottom line: You don’t have to be limited to the usual term life versus whole life insurance debate. Universal life insurance can give you additional investment choices and flexibility for getting the most out of your life insurance policy.

Our picks for best life insurance companies

Life insurance is essential if you have people depending on you. We’ve combed through the options and developed a best-in-class list for life insurance coverage. This guide will help you find the best life insurance companies and the right type of policy for your needs. Read our free review today.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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