What is the difference between Universal Life Insurance and Term Life Insurance? Which one is better?
If you are talking with an agent or advisor, hopefully the answer will be it depends on your situation.
Unfortunately, the landscape these days doesn’t always allow for impartial and independent advice. Some advisors believe that it is always best to only buy term life insurance. Some think Universal Life Insurance is the only solution to every life insurance need.
Both of these opinions are wrong.
If you look at two quotes for the same death benefit amount, the main difference between Universal Life Insurance and Term Life Insurance will be the cost. Universal Life is intended to last as longer than a 5, 10, 20, or 30 year term. The insurer is taking on a “till death do you part” commitment. (The death benefit is not guaranteed in all policies, but some policies do offer guarantees.) Obviously, knowing that you will have a life insurance policy beyond 10, 20, or 30 years can be a very important consideration.
Depending on the type of Universal Life Insurance you are considering, some or most of your payments may also go to building cash value. Considering this, it is almost ludicrous that “term only” proponents complain about the “outrageous cost” of Universal Life Insurance.
A similarly silly comparison would be saying a 4-year university education is too expensive, everyone should just take one community college course instead… after all it’s cheaper!
In summary, Universal Life Insurance is designed to last your entire life (even until old age) and can build cash value. Term insurance is like renting your insurance. Dying during that period is the only way that the policy will benefit your family (besides peace of mind.)
There are many different types of Term Life as well as Universal Life Insurance.
When considering the pros and cons, it is important to work with someone that has your best interests in mind. Find a knowledgeable professional whose only motive is to help you get what’s best for you, regardless of any benefit for them.