Term Life vs. Universal Life Insurance

 


TERM LIFE INSURANCE

  • Tends to be cheaper than universal life insurance
  • Premiums are transparent
  • No cash value
  • No premium flexibility

UNIVERSAL LIFE INSURANCE

  • Provides more flexibility in coverage than other options
  • Can provide cash value
  • The death benefit isn’t guaranteed
  • Interest rates can impact premiums

Like whole life, a universal life policy also falls under the permanent life insurance category. However, the cut-off for universal policies is usually around age 95 or 100. While it may not be enough for all policyholders, it still offers more longevity than you’d find with a term policy. You can build cash value in the form of tax-deferred interest with a universal policy, which isn’t an option with term life. Tax-deferred interest means you wouldn’t have to pay taxes on those earnings until the money is taken out of the policy.

But what sets universal life policies apart is that you have the power to change your premium and coverage. If you were to experience a job loss and needed to cut back on expenses, you would be able to do that without losing your policy. Term life insurance doesn’t offer that. That kind of flexibility comes at a cost, though, and a term policy will provide more for your money because of its short-term nature. Plus, because interest rates impact how much you pay for these policies, it can be difficult to know how much the true cost will be. You may end up paying more than you expected. That wouldn’t be the case with a term life policy.

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