Confused by the difference between universal vs term life insurance? Keep reading to learn which one is right for you.
Keyword(s): Universal Life Insurance vs Term Life Insurance
There’s a serious gap between the number of people who believe life insurance is important and the number of people who actually have it.
Eight-five percent of consumers believe life insurance matters, but only 62 percent are covered.
Have you been putting off investing in life insurance?
If so, now is the time to purchase it. But, which type of life insurance do you purchase? How do you decide which type is best for you?
If you’re confused about the different types of life insurance, keep reading.
The difference between universal life insurance vs term life insurance is explained below, along with other tips to help simplify the process of shopping for life insurance.
Why Does Life Insurance Matter?
Before we get into the specific types of life insurance, you may have some questions about life insurance in general. What is it? Why should you worry about it?
Essentially, a life insurance policy is a type of contract you enter into with an insurance provider. In exchange for premium payments, the provider will provide your beneficiaries with a payment (referred to as a death benefit) when you pass away.
The main benefit of life insurance is that it provides your beneficiaries with money that can be used to cover the cost of your funeral. That money can also be used to cover other costs associated with your death, such as the cost of settling your estate or paying inheritance taxes.
The money from your death benefit can also be used to help your beneficiaries maintain their lifestyle after you’ve passed away.
What is Universal Life Insurance?
One of the most common types of life insurance is known as universal life insurance.
Universal life insurance is a form of permanent life insurance. As the name suggests, it is meant to provide you with coverage for your entire life.
Universal life insurance is similar to another form of permanent life insurance known as whole life insurance. Unlike whole life insurance, though, universal policies are flexible. They allow you to raise or lower your premium payments over the course of your life.
Because it provides you with lifetime coverage, the premium payments for universal insurance are often higher than the premium payments for term life insurance.
Benefits of Universal Life Insurance
Why do people choose universal life insurance? Some of the greatest benefits of this type of insurance include:
- Flexible policies that let you make payments based on your current financial situation
- The cash value will grow at a variable interest rate, so your beneficiaries could end up with a higher death benefit
- There are more opportunities to increase the cash value of the policy
With a universal life insurance policy, you also have the option to pay the premiums out of pocket or pay for them using the cash value of your policy.
Universal life insurance policies are a great option for people who like flexibility and don’t want to be locked into one specific payment for the rest of their life.
What is Term Life Insurance?
Another popular type of life insurance is term life insurance.
Term life insurance provides you with financial protection over a specific period of your life. Many policies last anywhere from 10 to 20 years.
Term life insurance is usually a more affordable option than universal or whole life insurance. And, in most cases, when you pay for term life insurance, your premium payment will stay the same for the duration of the coverage period you select when you sign up for insurance.
Once that period is over, you have the option to renew your policy and maintain your coverage. But, the premium payment will likely increase, sometimes by a significant amount.
Benefits of Term Life Insurance
If you opt for term life insurance over universal life insurance, you and your beneficiaries will enjoy the following benefits:
- Less expensive
- Flexible term lengths
- Easier to understand, which makes shopping easier
Term life insurance is especially beneficial to young families. It’s a great financial planning tool for those who don’t have a lot of money and might not be able to afford a permanent policy.
Term life insurance provides these families with peace of mind and the knowledge that their loved ones will be cared for, and it doesn’t totally gut their bank accounts.
Term life insurance is also a good option for folks who are shopping later in life.
If you know (or suspect) that you’re only going to need coverage for a shorter period of time, term life insurance allows you to still provide your beneficiaries with a good death benefit without costing you a lot of money in insurance premiums.
Tips for Shopping for Life Insurance
Knowing the difference between universal and term life insurance is very helpful when you’re shopping for life insurance. But, there are other factors you should take into account, too.
Be sure to consider the following tips when you start shopping for life insurance. They will help you avoid scams and ensure you’re getting the best rates and coverage possible:
- Start shopping and purchase when you’re younger — this way, policies will be less expensive
- Do some math to determine how much coverage you need before you start shopping
- Take your time and compare policies from different insurance providers
- Do some research into the insurance provider and make sure they invest your premiums in a prudent way
You may also want to consider working with a financial advisor when shopping for life insurance. He or she will be able to help you through the process and ensure you purchase the best plan for yourself and your beneficiaries.
Universal Life Insurance Vs Term: Which Do You Choose?
Now that you have more information, where do you stand on the universal life insurance vs term life insurance debate? Which one is best for you and your family?
Whichever type of life insurance you’re interested in purchasing, we can help at Chip Berry Insurance.
If you’re still on the fence, we can also provide you with more information and help you make the right choice for your specific situation.
Contact us today to schedule a meeting or to get an insurance quote.