Term vs. Universal Life Insurance

When it comes to types of permanent life insurance and deciding which policy is affordable and best, consumers usually compare term vs. whole life insurance to determine the best life insurance policy to purchase. However, for certain families, adults, and parents with specific needs and financial goals, universal life insurance may offer the best coverage at the cheapest rates, and could offer am affordable, competitive alternative to term life insurance. For this reason, it is essential that consumers compare term vs. universal life insurance.

Term life insurance provides pure, temporary life insurance coverage at cheap rates, without a savings account or investment component called a cash value; while universal life insurance provides permanent life insurance coverage at slightly higher rates but offers the flexibility and benefits of life insurance coverage for a lifetime with the ability to accrue and build a cash value through investments. Both types of life insurance have advantages and disadvantages, and the different in costs could be minimal over a life time, requiring a term vs. universal life insurance comparison to determine the pros and cons and choose the best, cheap life insurance for you.

Term Life Insurance

The biggest advantage of term life insurance is term life insurance rates are the cheapest of any policy coverage, but term life insurance must be replaced or renewed at the end of the term period at higher rates. Life insurance companies determine life insurance rates by age and health, and the younger a policyholder or applicant is when he/she purchases the term life policy, the cheaper the life insurance rates. While term life insurance rates on a 30 year term life policy for a 25 year old man may be really cheap, when he needs a new life insurance policy at the age of 55, his life insurance quotes will not be as low cost as before. For young families with limited budgets, term life insurance may be extremely affordable initially, but the cost of life insurance may be higher with age and the development of health issues or problems.

Universal Life Insurance

On the other hand, because universal life insurance is permanent life insurance, universal life insurance rates are statistically based on the average life span of the insured person. Rates on universal life insurance for a 25 year old man will, initially, be higher than those on a term life policy, but universal life insurance rates will remain fixed over the insured person’s lifetime. There is no need to replace or renew universal life insurance so the man will pay the same premiums at age 55, 65, and 75 as he did at age 25. Most universal life insurance policies remain in effect until age 95 or age 121 as long as the premiums are paid and the policy remains in good standing.

Term vs. Universal Life Insurance Pros and Cons

Term life insurance is pure insurance and term life’s primary advantages are low fixed rates and a fixed death benefit, which is the face value of the policy and the amount your beneficiaries will be paid out when they file a claim if the policyholder dies prematurely while the life insurance policy is still in force.

Universal life insurance, however, offers the same life insurance coverage as term life, with the added benefits of an investment feature, which accrues cash value over time and can be used in financial planning or as collateral for low interest loans. While the universal life insurance rates are not as cheap as term life rates, this is due for two reasons – the risk to the life insurance company and the use of the premiums.

When policyholders make premium payments on a universal life policy, a majority of the premiums are used to fund the cash value of the policy, providing you with money to invest in stocks, bonds, mutual funds, and commodities. Universal life insurance as an investment can offer very good returns and help you grow your nest egg for retirement, though investment returns are not guaranteed and your life insurance cash value can suffer losses if you are not careful. The bottom line is that the death benefit of universal life insurance policies is tied to the performance of the investments and may fluctuate, while term life insurance has a fixed death benefit. If the cash value in a universal life insurance policy reaches zero due to investment failures, the policy may lapse and the insured person will have to seek new life insurance.

The other reason term life insurance rates are so cheap is that, if the policyholder does not die within the term period of the policy, the life insurance company keeps all the premiums paid. With universal life insurance, because the policy is permanent and provides coverage for a lifetime, the universal life insurance company will eventually have to make a pay out of the death benefit, therefore increasing their risk and decreasing their profitability. Again, the bottom line is that term life insurance does not have a cash value and if the insured person outlives the policy, the insurer does not pay a death benefit and retains the premiums, while universal life insurance is permanent and payment of the death benefit is guaranteed.

Term vs. Universal Life Insurance

Overall, term vs. universal life insurance comes down to what your specific financial and insurance needs are, your risk tolerance, and the type of life insurance you feel comfortable buying. Both term life insurance and universal life insurance have their pros and cons, each targeting a niche demographic of policyholder with unique needs and future financial goals. Universal life insurance rates are lower than those of permanent whole life insurance but higher, initially, than those of term life insurance.

Because term life insurance is temporary and new or renewal policies may not have the same cheap rates in the future, the cost of universal life insurance may actually be lower over a person’s lifetime than the rates of term life insurance. There is also the option of purchasing universal life insurance when you are young and healthy, and buying a supplementary term life insurance policy later on in life when you are in need of additional coverage.

Life Insurance Quotes

Either way, TheLifeInsuranceQuote.com offers free, instant life insurance quotes so consumers can compare life insurance rates, policies, coverage, terms, conditions, and different life insurance companies offering term and universal life insurance policies. By completing a term vs. universal life insurance comparison to get information on rates, coverage, and the advantages and disadvantages of both life insurance policies, consumers can make an educated, informed decision as to which insurance policy is the best and affordable long term investment for their needs.

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