Universal Life Vs. Term Life Insurance

Buying insurance can be a daunting task. The life insurance policies that are available for customers are many and so are the companies that provide the insurance policies. Purchasing life insurance is however an important investment, and not just for you as a policy holder. Your next of kin and dependants also stand to benefit from your investment.

Two common insurance policies that insurance companies sell are term life insurance and universal life policies. Each of these policies is fundamentally different from the other with each having advantages over the other as well as disadvantages too.
A comparative look at these two using several aspects such as longevity, flexibility, cost and benefits reveals the following;

Cost

The cost of buying term life insurance is usually lower than that of universal life insurance. Term insurance is a basic life insurance that offers life insurance with benefits being enjoyable only after the death of the insured. This means that the premiums are offered at a reduced cost, especially when the policy is purchased at the early stages of one's life, where the risks are not as many as when you get older. Life expectancy is also higher at this time of life. As one gets older, the premiums paid for the life insurance increase, usually at specified interval such as after 5,7,10 or even 15 years.

On the other hand, universal life insurance usually has a flat rate or level of premium paid all through the life of the policy. The payments are however more expensive than those paid in term insurance. Premium payments paid are divided into two: the cash value and death insurance payment. When at a young age a larger portion of the payments made go towards the cash value, which in some sense is savings. However, as you get older, more the payments are deposited towards buying the insurance policy, though the payments made are the same.

Longevity

Term insurance has a specific period within which the beneficiaries of insured can get benefits upon death of the insured. Once this period has passed, the policy becomes nullified and the insured has to buy another policy. If the cover ends at the later stages of life, buying another policy is usually very expensive due to increased risk factors.

For universal life insurance, the cover last the whole life of the insured. This however, depends upon the insured paying all the premium payments due in time. This cover offer guarantee of benefits as the insurance company cannot terminate the cover. They are legally bound to see the contract through to the end.

Flexibility

Once an agreement for the term insurance policy has been reached, there are no changes that can be made to it. Term insurance therefore ends up being rigid.
However, for universal insurance policies, deposits on the savings and the death insurance can be altered to suit the current financial situation of the policy holder.

Benefits

Benefits in term insurance can only be enjoyed at the demise of the insured. However, the excess earning made by the policy holder can be used to invest in stocks which have higher returns as compared to interest rates provided in universal life insurance.

This is different from universal insurance where the benefits can be enjoyed within the life span of the insured. The cash value can be used to supplement retirement earning of the insured. The cash value can also be used to acquire loans. It can also be used to make investments.

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