Term VS Universal Life Insurance

Reader’s Question:

How is a universal life insurance different from term life?

Mike

Columbus OH

If you have decided that now is the time for you to buy life insurance, you might probably be on the verge of comparing life insurance companies and the type of policies they offer. Choosing the best policy would actually depend on a variety of factors such as your age and health status. Your needs might also be taken into account as well. If you think your needs are temporary, then you might opt for term life but if you prefer a lifetime protection, permanent life insurance is a good choice.

Both policies are basically the two main types of life insurance but there are still many variations in each of them. For an example, if you want to buy a permanent policy but still want to leave your options open, then a universal life insurance is preferably much better for you. But whether you prefer term vs universal life insurance or vice-versa, it is vital to thoroughly examine each of them before considering one.

Term life insurance is, by definition, a temporary insurance. It has no accumulated cash value and the only way to receive its benefit is for the policy holder to die within the duration of the policy. Premium rates of this policy may increase each year as the risk of death is becoming greater. But there are many life insurance companies today that offer level premiums at a period of 5, 15, 20 or 30 years. Rates of term vs universal life insurance is generally much cheaper especially when purchased at the earlier years of life.

In a universal life insurance, insurers allow its policy holders to build more flexibility into the policy. For an example, a policy owner can request to modify the face amount of the policy or its premium in response to changing needs and any other circumstances. Premium payments for this kind of insurance is divided that a portion of it goes to cover the costs of mortality (death benefits) while the rest is credited to the cash value of the policy, which in return earns interest. However, while the cost of term vs universal life insurance is lower, it comes to no surprise to anyone that universal life insurance costs a fortune because of its investment aspect.