Term vs Universal Life Insurance

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Looking for life insurance coverage?

Let’s dive into the differences between term vs universal life insurance.

 

You know life insurance coverage is important, but finding it is often easier said than done.

Is it the right time to buy life insurance? How much will your premium payments be? Who will you choose as your beneficiary?

But one question likely stands out among the others: What type of life insurance should I get?

In this article, we’ll talk about the differences between term vs universal life insurance to help you come to an informed decision about your estate planning.

 

What Is Term Life Insurance?

You probably already know the basics about life insurance—namely, that it pays out upon the death of the policyholder.

Term life insurance is a type of life insurance policy that lasts for a specific number of years.

When you purchase a term policy, you get to choose how long you want your coverage to last. Most policies last between 20 or 30 years, but 10- and 15-year policies are also available.

If you pass away while the policy is active (and all other conditions are met), your beneficiaries will receive a payout known as the death benefit. However, if the policy expires without being used, you can sometimes renew your policy or convert it into a permanent life insurance policy. You may also simply let the coverage cease.

Term policies are typically the most affordable form of life insurance, and premiums are calculated based on the death benefit amount as well as your life expectancy.

For this reason, many life insurance companies will gather in-depth personal information (smoking habits, driving record, family history, etc.) or even require you to undergo a medical exam before you can purchase coverage.

Pros and Cons of Term Life Insurance

Advantages

More affordable – Premiums are generally lower with term life policies, especially if purchase them early.
Easy to manage – Simple, straightforward coverage means there is less to monitor. Premiums remain the same throughout the length of your policy.

Disadvantages

Temporary coverage – Coverage only lasts for a certain number of years.
No cash value – Term life insurance policies are only worth something if you pass while they are active. If you cancel your policy or it expires before you pass away, you won’t receive anything.

 

What Is Universal Life Insurance?

Universal life insurance, on the other hand, is a type of permanent life insurance. This means that—as long as you pay your premiums and fulfill any other requirements—coverage will last as long as you live.

Under a universal life insurance policy, your premium goes toward two things: the death benefit (which will go to the beneficiaries of your choosing upon your death) and a cash value component.

In many ways, this cash value is much like a bank account. It accumulates throughout the life of your policy, earns interest, and you can borrow or withdraw the money if you need it (although there may be fees involved).

Most importantly, if you choose to cancel the policy, you will still receive the cash value amount.  It is important to note that if you cancel within the first few years (often 10 years) the surrender value that you receive may be reduced or subject to fees. Universal Life is intended to be a permanent product.

There are three main types of universal life insurance: indexed universal life, variable universal life insurance, and guaranteed universal life insurance. Speak to your independent insurance agent and/or financial advisor for more information.

(Whole life and universal life insurance policies both have a cash value component, but they operate in different ways. Please read our article “Universal Life Insurance vs. Whole Life” to learn more.)

Pros and Cons of Universal Life

Advantages

Permanent coverage – Coverage lasts for your entire life.
Builds cash value – Premiums are paid toward the death benefit as well as your cash value, which you receive if you cancel the policy.

Disadvantages

Higher premiums – Because of the cash value component, premiums are typically higher for universal life insurance.
Must be monitored – Your cash value must be monitored closely to make sure you comply with the terms and conditions of the policy.

 

Term vs Universal Life Insurance

When it comes down to term vs universal life insurance, the biggest difference is the length of the policy.

With term life insurance, premiums are lower but coverage only lasts for a certain number of years. If you only need insurance coverage for a short amount of time—for example, while your children are still young—this may be a benefit to you.

With Universal life insurance, premiums are higher but coverage lasts for the rest of your life. If you need a more long-term approach with a cash value option, universal life insurance might be more appealing.

Life Insurance That Matches Your Needs

When it comes to life insurance, the question should never be “should I buy life insurance?” but rather, “What type of life insurance best suits my needs?”

Life insurance is the one type of policy that everyone on earth can benefit from. At Harry Levine Insurance, we take pride in helping families just like yours find the coverage that best matches their needs.

Our friendly agents are happy to discuss your goals, lifestyle, budget, and risk tolerance to help you find an insurance policy that works for you. Whether you’re looking for coverage for your life, home, car, or business, we can gather multiple quotes from quality insurance companies.

Call today or visit our website for a free quote.

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