The differences between term life insurance and universal life insurance
are important. Many people just think of whole life versus term life,
and then tend to get confused with the additional terms like
"universal." Essentially, universal life insurance is a type of whole life insurance. So the differences are very similar to those between a standard whole life insurance policy and a term life policy. Below are the key differences between standard term life and (specifically) universal policies.
The first noticeable difference is that term life insurance is for a set amount of time, and universal life insurance is for the entire life of the insured. There are, however, two other major differences that set them apart from one another.
The Cash Value Differences
Universal life insurance allows for an account to be set aside for the policy. Parts of the premiums paid are used as a tax-deferred savings account that accumulates interest. This account can be used to set up a retirement fund, increase the death benefit, and, once there is enough in the account, pay for the premiums. That means that, if money becomes a tight issue after the cash value is high enough, the insured will not lose protection of the insurance, because the cash can be used to pay most, if not all, of the premium dues.
This is what sets universal life insurance apart from term life insurance. Term life does not have a cash account, and the premiums paid simply go toward the policy. If the term expires and the insured is still alive, then the money will not come back (no refunds) and the policy would need to be renewed or rolled into a type of whole life policy.The cost differences are noticeable between the two types of insurance. Term life allows for a great amount of survivor benefit to be purchased (into several million dollars) for affordable premium amounts. Universal life insurance is much more expensive, especially in the beginning of the life of the policy. However, the benefits that are received later on can make up for the initial expense. It is more of a long-haul investment when considering a universal life policy.
An additional consideration is that universal life insurance does not always get the best interest rates–and though it can, after a while, pay for its own premiums–it is not a "high-yield" investment. For people who are savvier with investing and better at managing their money, a term life policy might be the better option. Those who are young enough to take greater risks can purchase a term life policy to protect their loved ones, and then invest the difference in high-risk, high-yield stocks. But for those who are not as disciplined about saving their money, and aren't as savvy at investing, a universal life policy can help them save money for setting up an estate, retirement fund, or to borrow against should the need arise.
The first noticeable difference is that term life insurance is for a set amount of time, and universal life insurance is for the entire life of the insured. There are, however, two other major differences that set them apart from one another.
The Cash Value Differences
Universal life insurance allows for an account to be set aside for the policy. Parts of the premiums paid are used as a tax-deferred savings account that accumulates interest. This account can be used to set up a retirement fund, increase the death benefit, and, once there is enough in the account, pay for the premiums. That means that, if money becomes a tight issue after the cash value is high enough, the insured will not lose protection of the insurance, because the cash can be used to pay most, if not all, of the premium dues.
This is what sets universal life insurance apart from term life insurance. Term life does not have a cash account, and the premiums paid simply go toward the policy. If the term expires and the insured is still alive, then the money will not come back (no refunds) and the policy would need to be renewed or rolled into a type of whole life policy.The cost differences are noticeable between the two types of insurance. Term life allows for a great amount of survivor benefit to be purchased (into several million dollars) for affordable premium amounts. Universal life insurance is much more expensive, especially in the beginning of the life of the policy. However, the benefits that are received later on can make up for the initial expense. It is more of a long-haul investment when considering a universal life policy.
An additional consideration is that universal life insurance does not always get the best interest rates–and though it can, after a while, pay for its own premiums–it is not a "high-yield" investment. For people who are savvier with investing and better at managing their money, a term life policy might be the better option. Those who are young enough to take greater risks can purchase a term life policy to protect their loved ones, and then invest the difference in high-risk, high-yield stocks. But for those who are not as disciplined about saving their money, and aren't as savvy at investing, a universal life policy can help them save money for setting up an estate, retirement fund, or to borrow against should the need arise.
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