What’s The Difference Between Whole, Universal, and Term Life Insurance?
Have you been talking to your friends about getting insured and you don’t know the difference between whole, universal, and term life insurance?
Have you been wondering which among these insurance packages is the right for your specific needs?
If you answered YES to at least one of these two questions, you’re definitely someone who’s come to a decision that you need to have a life insurance policy.
You may have arrived at that decision the first time after you had a child or maybe a life event happened that made you consider getting insured.
Whatever the reason, it’s time that you look at the options available for you so you can decide which is the best fit for you.
Let’s dive in and see their differences.
Term Life Insurance
Term life insurance is the easiest form of life insurance to comprehend. It is also the least expensive among the three.
When you’re planning to get a term life insurance policy, keep in mind that you’re only signing up for insurance that will cover you for a particular term or period of time. In other words, it’s only in play for a set number of years.
Over the duration of the term, you’ll pay an exact amount of money to the insurance company every year. It could be paid quarterly or monthly depending on your arrangement. The money is called the premium.
So, if you happen to die during the term, the beneficiaries listed on your policy will receive the benefits.
Let’s say, you have a 15-year term life insurance policy that provides a $250,000 benefit to your spouse or your children in the event of your death anytime during that 15-year period. In order for you to maintain that insurance, you have to regularly pay a certain amount.
The biggest disadvantage of having term insurance policies is that if you are alive when the term ends, you get nothing from it. Term policies only cover the number of years allocated in your agreement at the start. Once that term is over, the policy and payments end and you are now without life insurance.
Whole Life Insurance
Whole life insurance is a lifetime insurance package that offers a benefit to the ones listed on your policy once you die. It also offers a certain minimum benefit that can grow over time because it features an investment component.
As the years go by, your policy starts to grow its value in cash. You can actually borrow against this cash later on, if you wish.
There’s also an option for you to choose to begin receiving dividends from the investment portion as time goes on. The dividends are usually small but you can also get huge dividends if you got a large insurance package.
Some people eventually begin taking the cash value of the insurance and using it to pay the annual premium. It becomes a policy that lasts for the rest of their lives without them paying a single dime.
So what’s the catch? The monthly or yearly premiums are much higher compared to what you’d pay for term insurance with the same benefits.
Universal Life Insurance
Universal life insurance also lasts for a lifetime, but the difference is that it has a capacity for you to adjust the benefits later on.
It’s actually similar to whole life insurance but the good thing about this form of insurance is that you can make the benefits lower or higher as time goes on, depending on your ever-changing needs.
This comes with a cost, though. Depending on the current interest rates, the amount of premiums you pay will also adjust with universal life insurance.
Rates are usually much closer to the higher whole life rates than the term rates. As a matter of fact, rates for universal life insurance are sometimes even higher than rates for whole life insurance.
The investment portions of whole and universal life insurance can offer great benefits but you’ll end up paying a lot for it. Your premiums are going to be much higher compared to what you’d be paying for a term policy.