Term vs whole vs universal

Compare Types of Life Insurance

Term vs. Whole vs. Universal

Term life insurance provides life insurance for a set period of time, or term, after your policy starts. Term life policies usually are annually renewable for a period typically lasting from 5 to 30 years.

Whole life policies provide life insurance for your entire life, as long as you pay the premiums, and also can offer tax advantaged savings benefits. They are more expensive at the beginning than term life policies.

The Pros and Cons of Whole Life Insurance

While whole life insurance may cost more money, it provides both death benefits (life term life) of a certain “face amount” and also has a “cash value,” which reflect an accumulation of your premiums after allowances for your insurance company’s expenses and claims.

When you are young, your whole life premiums are more than the cost of insuring your life at that time, and this excess amount is added to the cash value of your policy. Over time the cash value grows as the life insurance company invests it, and this increase is almost always tax-deferred, so you won’t have to pay taxes on the increase each year. Many people use the cash value of their Whole Life policy to provide additional financial flexibility.

Accessing the Cash Value of Your Whole Life Account

While whole life insurance may cost more money, it provides both death benefits (life term life) of a certain “face amount” and also has a “cash value,” which reflect an accumulation of your premiums after allowances for your insurance company’s expenses and claims.

You may be allowed the access the cash value by taking loan against your policy or getting a payment of the cash value. If you surrender your policy you will receive the accrued cash value as of that point in time (which is different from the face amount of your policy, which is what your beneficiaries get if you die). The actual amount that you can receive will depend whether there are any outstanding loans or unpaid premiums that can be deducted from the cash value.

The Pros and Cons of Term Life Insurance

Term Life insurance pays a death benefit If you die within the period covered by the policy. This time period varies by policy, but typically can be renewed annually for anywhere from a 5 to 30 year period from when it starts. Unlike whole life, a term life policy does not last for life.

Term life insurance policies have lower initial premiums, but this amount can change and will typically rise over time. Beneficiaries receive a death benefit only if the policyholder dies during the term period.

Term life insurance provides the simplest way to provide benefits to your family if you die, but does not offer a tax advantaged savings mechanism like whole life, and the policy ends after the policy life.

Pros and Cons of Universal Life Insurance

Universal life insurance has lower premiums than whole life insurance, but incorporates a savings component. Unlike whole life insurance as your circumstances change so will your premium. Policyholder’s can also use the value acquired by the policy to help pay the premium. With a universal health life insurance policy the insurance company determines a minimum interest rate they are going to provide their policyholders, which if the company does better than that minimum interest rate is added to the policy’s cash value. Policyholder’s can borrow against the cash value of their policy tax free.