Universal Life vs Term Life Insurance

Articles on Insurance | Topics: insurance, insuring

by Gwendolyn P. Quinn

Universal Life vs. Term Life Insurance

Choosing between universal life and term life insurance can be one of the most confusing, yet consequential, challenges a person can face during his or her lifetime. The wrong policy might leave a family without the financial benefit it really needs following the death of a loved one or can burden the family with excessive, unnecessary coverage at a hefty cost to their fiscal well-being. It is possible, however, for the consumer to avoid such costly mistakes by doing a little bit of research and planning on his or her own. Only then can a responsible choice be made.

Before a choice is made between universal and term life insurance, the consumer should determine whether or not he or she actually needs life insurance. Basically, if the consumer's death would cause a financial burden for his or her family, then life insurance is a must. Examples of the types of financial burdens to be concerned about are: funeral costs, college tuition, left-behind credit debts, tax debts and mortgages. Generally, for a single person with no children or dependents, life insurance is completely optional. Once the decision to purchase life insurance has been made, then the consumer must determine which type of policy is the right one for them. A referred, reputable agent can help a potential policyholder wade through the benefits and costs of multiple policy types.

Universal Life Insurance

A universal life insurance policy, also referred to as a 'cash value' policy, is for the consumer whose financial planning considerations extend far into the future. This type of policy, of course, will pay any necessary death benefits, but it also provides the policyholder with an additional financial advantage - a tax-deferred savings account. Although one must generally hold the policy for at least 15 years in order to see any return from the savings account, it does provide the policyholder with a stable long-term investment that can be cashed out or borrowed against, if necessary. Many financial experts recognize the investment benefits of a universal life policy as sound, while others argue that there are better investment options available to the educated consumer.

The coverage amounts provided by a universal life policy remain consistent throughout the years, as do the premium rates. These premium rates tend to be higher than other policies (the agent commissions and fees have much to do with this), but under some plans, the rates drop as the policyholder ages and might even disappear completely. There are no renewals to deal with unless the policy is allowed to lapse.

Bit of History

We also have to make sure our children know the history of women. Tell them the rotten truth: It wasn’t always possible for women to become doctors or managers or insurance people. Let them be armed with a true picture of the way we want it to be.

—Anne Roiphe (20th century)

Term Life Insurance

A term life insurance policy is one of the most flexible and economical types of life insurance coverage available. This type of policy is for someone who seeks basic coverage for a pre-determined period of time and is not looking to combine this coverage with a savings account - those who choose term coverage often have investments elsewhere. The lack of an accompanying savings account means that the premiums for this type of coverage are relatively low but it also means that there is no return on any of the money paid into the policy over the years.

The premium rates for a term life policy are dependent upon the policy chosen. Policies can usually be purchased for periods of 10, 15, 20, 25 and 30 years and may be renewable. Apart from the low rates, the variety of term periods available is one of the most attractive aspects of the term life policy and offers a lot of flexibility to the policyholder. For example, if a couple has a child entering college and wants to ensure that his or her tuition will be paid for in case of their deaths; they can purchase a term life policy that would cover that child's college years. There would be no reason to purchase a lifetime policy for a short-term need. Policyholders can also choose term policies with increasing or decreasing coverage.

One of the disadvantages of a term life policy, however, is the inconsistency of its rates. While the premium rates do start out very low, they usually increase as the policyholder ages. Additionally, if the policyholder wants to renew after the initial term is complete, the fees associated with the renewal (because of age health, etc.) may be prohibitive.

We strive to provide only top rate articles on our website. If there is a specific insurance-related topic that you do not see but would like us to cover, please contact us here.

Please note: All personal opinions expressed in the "Universal Life vs Term Life Insurance" article belong to the contributing author and are not necessarily shared by BusinessInvestingFinance.com.

Money Exchange Rates
By Dennis Watkins
When it comes to taking a trip to another country there’s one thing that can be even more confusing than the foreign language spoken there. Money exchange rates are baffling sometimes and unless you have a currency converter on hand, you may not have a clue how much your native money is worth in the foreign destination....

How To Start Up A Small Business
By Kaylee Travis
I wish I could tell you that there was one secret key to how to start up a small business. Unfortunately, if you are starting your own business, you're going to have to work hard, and you might not succeed....

Get more articles about insurance...