According to Andrew Edelsberg, a vice president in the life and health division of A.M. Best Co., the reason for lower term life insurance sales last year was a combination the sluggish economy and higher rates. He explained, “Term pricing generally increased as carriers were, in many cases, forced to self-fund Regulation XXX reserves as alternative solutions became relatively expensive.” Edelsberg added, “We saw an increase in whole life and universal life sales due to consumer’s demand for cash value policies, as well as universal life with no-lapse guarantees.”

The folks at Forbes define them as follows:

* Whole life insurance – Caters to long-term goals by offering consumers consistent premiums and guaranteed cash value accumulation.
* Universal life insurance – Gives consumers flexibility in the premium payments, death benefits and the savings element of their policy.

Those definitions are a little basic, but essentially correct, but when choosing between them, you should also understand the following:

Universal Life

• Also known as “adjustable life insurance,” because it offers a lot of flexibility. You can increase or reduce your death benefit, or the time you pay premiums, once your first premium payment has been made.
• You can increase the face value of your coverage, if you pass a medical examination, first.
• You can decrease your coverage to the minimum allowed amount without surrendering your policy, but you may be assessed surrender fees.
• There are two options for the death benefit: a fixed amount, or an increasing amount equal to the face value of your policy plus your cash value amount.
• If finances get tight, you can reduce or stop your premiums, and use your cash value to make premium payments. (Never do this without consulting your insurance advisor).
• At time of policy inception, your insurance company will disclose the entire cost of insurance to you.
• Because universal life insurance is tied to an interest rate, your policy may not always earn the estimated returns.
• If you have enough of a balance, you may withdraw funds from your cash value account when there is an urgent need.

Whole Life

• Whole Life insurance covers you as long as you live.
• You will pay the same premium for a specific period of time in order to receive the death benefits.
• There is a savings feature embedded into whole life insurance – for this reason, you are likely to pay higher premiums than you would with term life, at least at the beginning of your policy.
• Part of your insurance money will be held in a high-interest bank account; every premium payment will help increase your cash value account, on a tax-deferred basisd.
• You are able to borrow against your cash value or surrender your policy for the full cash value.
• You may choose to participate in your insurance company’s surplus, and receive annual dividends, either in cash, or by adding them to your cash value account and letting them earn interest.
• Whole life insurance is best purchased while you are young, so you can afford to pay for it over the long term.

These bullet points offer a mere sketch of the differences between whole and universal life insurance. Be sure to consult your insurance advisor before committing to either type of policy.