Choosing Between Term Life and Universal Life Insurance

Choosing Between Term Life and Universal Life

Investing in a life insurance policy is one of the best decisions you can make in your lifetime. Making this commitment protects family members from incurring financial setbacks in the event that they have to pay for a deceased loved one's funeral and burial arrangements, existing debts, and mortgages. The survivors of growing families may have additional factors to consider, including childcare expenses and college tuition. In many cases, a life-threatening illness may result in payment of benefits. Most legal contracts exclude some causes of death, such as civil chaos, suicide, and war.

One of the biggest challenges about obtaining life insurance is choosing the policy that fits your circumstances. It's important to consult with a financial expert before making a move. Financial planners have gone through rigorous training to help you make solid investments that align with your situation and manage your resources effectively. Make sure that your financial planner has gone through training and received a financial degree from an accredited institution. Other valuable business professionals that play an integral role in guiding you in the correct selection of life insurance include attorneys, insurance brokers, and estate planners.

Regardless of who you pick to be involved in this major venture, make sure they're a qualified professional, preferably a professional with a business education, that'll explain the specific conditions of each option in detail. Take a look at two significant preferences for many people.

What is Term Life?

Term life insurance is typically the most affordable and versatile policy available to consumers. The plan provides basic coverage for a specified time which is commonly five, ten, fifteen, or twenty, although terms with lifespans over twenty-five can also be purchased. Since coverage is given for a pre-determined period, the policy doesn't accrue cash value.

Premiums for term life insurance typically start out relatively low. The exact amount varies by the requested length of coverage. As the insured person ages, the premium tends to increase. Renewal fees are usually higher as well.

Universal Life 101

Also referred to as a UL policy or cash value plan, universal life insurance is a modernized option for individuals. Premiums are generally more expensive since policyholders receive a long-term arrangement. However, the rates are more consistent and the package not only covers death benefits, but also provides a tax-deferred savings account that can be cashed out or borrowed against after an accumulation of years. Since coverage is constant, there's also no renewal fees unless the policy lapses.

Policyholders can choose between two death benefits under universal life insurance: Option A or Option B. Option A offers a level death benefit, meaning that the benefits remain the same for the duration of the coverage. Contrarily, Option B renders the face amount along with the cash value which results in higher premiums than Option A.

Understanding Which Policy is Right for You

Most individuals who are young and single with minimal responsibilities choose term life insurance over universal coverage. The cheaper premium tends to fit in better with their budget and buys the basic protection they need at the time. Older individuals with families, however, usually go with universal insurance for more stability and the extra monetary advantage that's available to them after being covered for a lengthy amount of time.