Term Life, Whole Life, and Universal Life Insurance: What You Need to Know

If you’re thinking of buying life insurance, you might be confused by the different options. But before you start thinking about which company to go with, you need to understand the three basic types of life insurance: term life, whole life, and universal life insurance.

We’ll explain broadly how each type works so you’re in a better position to choose the type of policy that will best serve your purposes.

Term life insurance

A term life insurance policy is for a predetermined number of years—usually 10, 20, or 30. If you pass away during the term, the insurance pays your death benefit to your beneficiaries. If you’re still alive at the end of the term, the policy expires, and your death benefit will not be paid. The advantages are that premiums remain the same throughout the term of the policy—plus, they’re less expensive than other types of life insurance. The drawback is that you’ll lose all the money you paid in the event you don’t die. That said, term life is especially helpful if your beneficiaries will need financial support for a certain number of years after your death, for example to raise your children, pay off the mortgage, or put aside money for your kids’ education.

Whole life insurance

A whole life insurance policy lasts your entire life and pays the death benefit to your beneficiaries when you pass away, regardless of when that is. (Note: Some policies don’t pay out in the first two years of coverage.) The premiums, which are partially invested by the life insurance company, accumulate a guaranteed cash value—which is tax deferred—over the life of the policy. Those funds can be accessed during the policy. You should purchase whole life insurance when you’re young to secure a lower premium—although it’s important to know that the premiums are higher than with term life insurance. A whole life insurance policy is a good idea if you want to ensure your beneficiaries receive a death benefit regardless of when you pass away. This can be helpful if you have a dependent who’s unable to earn an income, such as a disabled spouse or child. It can also be useful if you want to be able to access the funds in the policy at some time in the future—although the fees to do that can be steep.

Universal life insurance

A universal life insurance policy is also referred to as adjustable life insurance because it’s more flexible than whole life. You can make premium payments when you want to and for the amount you want to. Just like with whole life, your beneficiaries will receive a death benefit regardless of when you pass way. Plus, your policy also builds up a cash value. The main difference it that excess premium payments are invested by the life insurance company in stocks, bonds, and annuities, which can offer better returns than with a whole life insurance policy—but it’s wise to research the company so you know their investment choices align with your own. As such, a universal life insurance policy can be a good choice if you want to ensure your beneficiaries receive a death benefit and you’re looking for higher returns.

When purchasing a life insurance policy, it’s always wise to get advice from the experts. Liberty Financial Group is an independent life insurance broker that can help you determine the best policy for your situation. We can also help you apply for a policy and support you throughout the assessment process. Contact us today for more information.

Sources

https://www.investopedia.com/articles/pf/07/whole_universal.asp