Whole Life Insurance vs. Term Insurance vs. VUL

Whole life insurance includes guaranteed cash value accumulation in addition to your benefit, so you can have an extra source of funds for your future needs. This becomes possible because when you get whole life insurance, your insurance company takes a portion of your premium payments and places it into an investment or high-interest bank account. So, as you continue paying your premiums, your cash value increases.

If you need extra money, you can borrow against your insurance policy. You can also surrender your whole life insurance policy to get your cash value and use it for other important things.

Aside from cash value, your whole life insurance plan can gain dividends if it is a participating policy. This depends on your insurance company and the specifics of your policy.

Insurance companies usually distribute their clients’ dividends every year. Once you receive yours, you can opt to do whatever you want with the extra money. You can choose to receive it in cash, leave it and let it accumulate interest, or use it to pay your premiums, or improve your insurance coverage.

Most of the time, you will pay the same premium rate for the duration of your policy. This is true whether you’re paying your insurance plan monthly, quarterly, or annually.

Because you are expected to pay the same amount every time, you can easily budget your money without worrying about your premium suddenly changing prices. To make it easier, you can save a set amount of money every payday and save it until your next due date.

One of the benefits of whole life insurance is its cash value, which you can borrow from. However, you should know that your cash value and death benefit are not separate. This means that whenever you borrow against your policy, your death benefit will decrease by the same amount. The amount of your death benefit will remain that way until you fully pay your loan plus any interest due.

For example, you took out a P50,000 loan from your policy. If an unfortunate event happens to you before you pay back your loan, your beneficiaries will receive P50,000 less, plus interest. Therefore, you should make sure that you can pay any amount of loan you take out against your whole life insurance policy. This will allow you to guarantee that your beneficiaries will receive your whole death benefit when you pass away.

Another disadvantage you may encounter with whole life insurance is its price. When comparing whole life insurance vs. term insurance, you might find the former more expensive than the latter. For the same amount of death benefit, you might have to pay 5-15x more than term insurance. This is why some people have a hard time paying their whole life insurance premiums regularly.

You may also consider whole life insurance’s complexity a drawback. Unlike term insurance where you can simply stop paying your premiums if you don’t need the insurance anymore or can no longer afford it, whole life plans require you to undergo a specific process.

When surrendering your whole life insurance, you may also have to pay a charge of up to 10% of your cash value. However, you shouldn’t worry too much because this charge reduces through the years until it finally ceases.

When choosing between term life vs. whole life insurance, you might find the latter too complicated to understand. Term life insurance, on the other hand, does not have any complexities and can be grasped easily even by someone new to insurance policies.

Term life insurance’s finite duration also adds to its simplicity. With this plan, you can easily stop paying your premiums if you don’t need the insurance coverage or can no longer afford it. You won’t have to go through the trouble of reaching out to your insurance company just to surrender your policy.

Another answer to your question “What’s the difference between term and whole life insurance?” is their price. Unlike whole life insurance, term insurance is more affordable.

You can get covered by a term life insurance at an affordable price of about P7,000 per year depending on your insurance company. Your policy can then be in force within 5-30 years, subject to your specific situation and financial capabilities.

People often choose term life insurance because of its affordability. However, compared to other life insurance plans, term life insurance is more volatile when it comes to the price of your premiums.

The premiums you need to pay increase or decrease based on the amount of your death benefit or the length of your coverage. Because of this, you might find it hard to anticipate the cost of your premiums.

You might have a hard time getting approved for a term life insurance if you have any health complications. This is because most term life policies require a medical exam.

Additionally, term life policies often have a lower age limit compared to whole life insurance. Most of the time, only people up to 50 years old can apply for all the term lengths offered by an insurance company. You might be limited to getting a maximum of 20-year term life policy once you reach 60 years old.

Term life insurance only covers you for a limited number of years, so it might not be the best option if you’re looking to address your permanent life insurance needs. Unlike other types of life insurance, term life plans cannot help you or your loved ones cover funeral expenses or care for a special needs child to adulthood.

With term life insurance, you might also feel like you only spent your money purposelessly other than for peace of mind. Once your policy expires, you won’t get anything from your term life plan because you can’t use it to grow your money any further.

When comparing whole life insurance vs. VUL, the most outstanding benefit that the latter offers is flexibility. When you get a VUL plan, you have full control over what happens with your money, particularly your investments.

First, you can easily change the face value of your insurance policy whenever you need to. You can do this without surrendering your policy and while still being covered by insurance.

You can also increase, decrease, or even stop paying your premiums without affecting the amount of your death benefit. If your plan has accumulated enough cash value to keep your policy in force, you can choose to use the money you have saved for premiums on other things.

With VUL insurance, you can grow your money while being protected by the insurance policy. This is possible because a portion of your premium payments is invested by your insurance company. With time, you can enjoy greater returns on your investments and save more money for your future needs.

You also have control over fund allocations. Additionally, you can combine insurance opportunities if you think that’s what will give you greater returns.

Another benefit you can enjoy when you obtain VUL insurance is the ability to withdraw from your policy. Once your plan accumulates enough cash value, you can withdraw money whenever you need to address an emergency financial need.

You can withdraw as much money as you can from your policy as long as your policy’s cash value is enough to pay for your premiums. Your withdrawals will not incur any interest and will also often be free of charge.

VUL insurance allows you to earn money through investments. However, the performance of your insurance funds may greatly affect your cash value.

If your investments perform badly, your cash value will be negatively affected. You may also have to pay more than your premium to ensure that your policy is in force if your sub-accounts devalue.

When comparing term insurance vs. VUL, you might notice that the latter is more expensive. This is because the fees associated with VUL policies are higher than any other insurance plans.

Surrendering your VUL policy will also cost you money. This type of insurance is usually subject to surrender charges, which can last for up to 15 years. So, if you want to surrender your VUL policy early, you will have to be ready to pay the associated fees.

VUL insurance is much more complicated than other types of plans. Because of its various components, you should monitor your VUL policy closely while it is in force. Failing to do so may cause you to encounter some problems.

One of the issues you may have to deal with if you do not manage your VUL plan—including its sub-accounts—is poor investment performance. You may also be disappointed when the results you get don’t match your previous expectations.