What are the advantages and disadvantages of these life insurance policies? For ten years, I paid indexed universal life insurance for my two kids (one is now 18 and the other is 16), as well as myself, under the impression that it was whole life insurance. Why do some people choose whole life insurance over indexed universal life insurance?
Both policies offer guaranteed death benefits, allow you to borrow against the cash value, and have paid-up provisions.
However, Indexed Universal Life (IUL) is often preferred by those looking to generate more cash value. IUL policies typically offer higher interest rates and more flexible premiums. You also have the option to fund the policy using the cash value. The drawbacks of IULs are that they can be expensive to fund and, without a guaranteed interest rate, the cash value can be vulnerable to market fluctuations.
Whole Life (WL) insurance is more straightforward. Your premiums are guaranteed for life, and often, the cash value interest rate is fixed. These policies do not build cash value as quickly as IULs, but they are less risky if you prefer to maintain a steady cash account. WL is basic permanent life insurance, providing life coverage as long as the premiums are paid.
In whole life premiums remain fixed throughout the policy’s life, and the cash value grows at a guaranteed rate.
Whole life is better because it provides a guaranteed death benefit payout to beneficiaries regardless of market conditions or policy performance.