Universal Life Insurance vs. Term Life Insurance: Which is Right for You?

Posted by Grace On 25-11-2024

When it comes to planning your financial future, life insurance plays an important role. It will give your loved ones a crucial financial cushion after you’re gone but knowing which policy to choose can be difficult.

Your first step is deciding on universal life insurance vs. term life insurance. They both provide financial protection but do so in two very different ways. Read on as we give you all the info you need on these two life insurance types.

What is Term Life Insurance?

Term life insurance is a straightforward policy that covers you for a specific period. If you pass away during this period, then your beneficiaries will receive a tax-free benefit. Once the term ends and the policy expires, you will no longer be covered.

As there is a chance no payment is made, this results in this policy being a more affordable option. Many like this policy due to its simplicity, as there is no cash value, which is a feature of universal life insurance.

Once the policy expires, the policy will lapse if no other action is taken. However, at this point, policyholders often have the option to renew the term policy or convert it into permanent life insurance.

Who Should Consider Term Life Insurance?

Term life insurance is simple and affordable. This makes it a better option for many young families. For example, if one partner has left employment to look after their children, term life insurance can bridge the gap until circumstances change.

It’s also ideal for those with limited budgets who still want protection. Another common reason to get term life insurance is to cover a specific need, such as having the policy alongside a large financial obligation, such as a mortgage.

What is Universal Life Insurance?

Universal life insurance is a type of permanent life insurance. This means that you pay into the policy until your death when the lump sum is then paid to your beneficiaries. The policy will only expire upon death or if the premiums are not made.

The other common permanent policy is called whole life insurance. With a universal policy, you get life coverage combined with an investment cash value. With whole life cover, the death benefit is combined with a lower-risk savings component.

With universal life cover, a part of your premium goes into the insurance coverage, while the remainder is invested. The cash value then grows over time and this can be used in a variety of ways, such as being borrowed against.

With universal, the premiums can be flexible based on your financial situation. You can also make changes to the death benefit which provides you with plenty of freedom when compared to other policies.

Who Should Consider Universal Life Insurance?

Universal life insurance is better for those who want to plan for the long term. The premiums may be higher than with a term policy, but you get the benefits of the permanent coverage and the peace of mind that comes with it.

Due to those higher premiums, it may be more appealing to higher-income earners. The tax-deferred growth of the cash value can also be appealing, especially for estate planning. The flexibility is also an advantage for those who want more financial control over their future.

How to Choose the Right Policy

The choice between universal life insurance and term life insurance isn’t an easy one. As well as these two types, you should also consider whole life insurance. If that all sounds like too much to take in, then here at Marathon Insurance, we’ll be more than happy to answer any questions you have.

However, when it comes to universal life insurance vs. term life insurance, budget is a key consideration for many. If affordability is your primary concern, term insurance is likely the better choice for you right now.

If you’re thinking long-term and want lifelong coverage, universal life insurance is going to be the better option. Added to this, you get the benefit of the investment component, with the tax advantages and the potential for significant cash value returns.

Put another way, universal is better for those with stable circumstances, and the term is better for those whose circumstances may change in the future. This is because term insurance can be seen as a bridge until a permanent policy better fits your circumstances.

Navigating life insurance can be challenging, especially as you consider there are four types of universal life insurance. An insurance broker can assess your needs, explain these differences, and allow you to make an informed decision.

Final Thoughts

When it comes to universal life insurance vs. term life insurance, one policy isn’t better than the other. Instead, both of them can be excellent solutions depending on your circumstances. It’s important to look at your situation and decide which is better for you and your family.

Here at Marathon Insurance, we’re more than happy to take your call and look at which solution is best for you. Get in touch today and we’ll gladly see which type of life insurance fits your needs and find a quote that fits your budget.

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