Term vs. Universal Life Insurance: Which Coverage is Right for You (2021)

Are you considering term vs. universal life insurance? Term life insurance covers you for a specific length of time with rates that are typically lower than those associated with a universal life policy. When the policy ends, no one will receive a payout if you are still living. Universal life insurance offers a cash value throughout the duration of the policy and a death benefit that will be paid out when you pass away. Term vs. universal life insurance policies vary in rates and benefits.

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Natasha McLachlan is a writer who currently lives in Southern California. She is an alumna of California College of the Arts, where she obtained her B.A. in Writing and Literature. Her current work revolves around insurance guides and informational articles. She truly enjoys helping others learn more about everyday, practical matters through her work.

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Laura Walker graduated college with a BS in Criminal Justice with a minor in Political Science. She married her husband and began working in the family insurance business in 2005. She became a licensed agent and wrote P&C business focusing on personal lines insurance for 10 years. Laura serviced existing business and wrote new business. She now uses her insurance background to help educate...

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Reviewed by Laura Walker
Former Licensed Agent

UPDATED: Jul 16, 2021

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The Rundown

  • Term life insurance covers policyholders for a fixed period of time
  • Universal life insurance offers lifelong coverage at higher rates
  • You should always consider putting money away for retirement as well as for investments in life insurance coverage

If you are trying to decide on term vs. universal life insurance, there are many factors to consider.

Term life insurance provides coverage for a certain amount of time. You can set your policy for anywhere from 10 to 30 years. If you’re still living at the end of the term, your policy expires and no one receives any money.

Universal life insurance, on the other hand, is a lifelong policy that offers coverage until you pass away — provided you continue to pay your premiums in a timely manner. It also allows you to borrow against your life insurance policy should you ever need to.

Both term and universal life insurance have their place and can be quite helpful. It is important to know how both insurance types function in order to make the best choice for your circumstances.

To compare term vs. universal life insurance quotes, enter your ZIP code in the free tool above to evaluate your options.

What’s the difference between universal life insurance and term life insurance?

There are many differences between term and universal life insurance policies.

Term life insurance, often called pure life insurance, provides life insurance coverage for a specified amount of time. This type of coverage is typically designed to protect your dependents.

With a term life insurance policy, your beneficiaries will receive the benefit if you pass away during your specified term.

Typical terms associated with term life policies are 10, 20, or 30 years.

Premium costs and the death benefit for most term life insurance policies will remain the same throughout the policy. Because of this, term life insurance quotes tend to be lower than any form of permanent life insurance.

When shopping for term life, you should consider choosing a term that covers the years you will be paying larger bills — such as a mortgage.

The goal would be that your need for life insurance ends when your term life policy expires.

For example, your kids will be living on their own, your house will be partially or fully paid off, and you will have a savings account to depend on in case you need it.

In contrast, universal life insurance is a lifelong insurance policy in which the cash value grows along with the portfolio’s performance.

Universal life insurance has a cash value component that is considered separate from the policy’s death benefit.

When you pay your premiums, a percentage is utilized as the cash value that grows over time. The cash value should grow with a minimum interest rate, but there is potential for it to accumulate faster depending on the performance of the market.

The cash value from your policy can be used to pay for your premium payments or as a loan if you need the cash for something pressing.

You have the option to choose how much you pay toward your policy. A lot of people choose to pay as much as possible for the first few years of the policy in order to build a larger cash value that they can utilize later on.

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What are the disadvantages of universal life insurance?

Unlike a term life policy, universal life insurance policy premiums are subject to increase as the policy ages. As you get older, your policy premiums are likely to increase quite a bit.

Because of this, it is important to watch your policy’s cash value. If you use it to pay your premiums, you could get stuck having to pay the full amount of the premiums as they increase.

Many people compare universal and whole life insurance policies. One disadvantage to a universal life insurance policy is that there’s so much that is subject to change.

For example, the cash value associated with a whole life insurance policy increases at a set rate, and the premium on the policy also tends to be set for the duration of the policy, as long as the premiums are paid on time.

Is term or universal life insurance better?

Whether term or universal life insurance is better depends on your individual and specific needs. Before you buy term or universal life insurance, you need to consider the benefits and drawbacks of each.

If you’re looking for life insurance simply for a specified time to cover the loved ones in your life, then term life insurance may be the best option for you. You would likely pay lower insurance rates with this type of policy.

However, if you’re looking for a lifelong policy that aids your loved ones and also serves as an option for you when you need cash, a universal life insurance policy would be a better choice.

You can typically find affordable term and universal life insurance options with most companies, though there is no singular term or universal life insurance company.

Keep in mind that neither of these options should be considered simple forms of investment opportunities for retirement. If you’re concerned with having money for retirement, you should also consider investing in something like a 401(k).

If you’re looking to compare the lowest term vs. universal life insurance rates, enter your ZIP code in our free tool below to find options that work for you.

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