Difference between Term, Universal and Whole Life Insurance

Differences Between Term life, Universal and Whole Life Insurance
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    Are you wanting to find out the difference between Term, Universal, and Whole life insurance? Our infographic below will go over the key factors of each. When you’re finished, be sure to check out our reviews on Top 10 life insurance companies for all of these policy types.

    What’s the difference between Term, Universal and Whole Life Insurance?

    This article and infographic will go over the major differences of Whole, Universal and Term life insurance.

    Difference Between Term, Universal and Whole Life Insurance

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    Let’s take a closer look at the different types of life insurance. Each one has advantages and disadvantages to the life insurance shopper.

    1. Term Life Insurance

    A Term Life insurance policy is the easiest and most basic type of life insurance. A common strategy that’s promoted is to buy term and invest the difference.

    It is simply a life insurance policy that will provide your beneficiary with a death benefit from accidental or natural death for a specified amount of time. What if you don’t pass away during this term period or specific period of time?

    Your term life policy will eventually expire.

    For the majority of cases, a term life insurance policy is less expensive to purchase at earlier ages of life. This is because young people are a low risk to die and life insurance is priced due to risk.

    As you age, you become riskier to the life insurance companies and your term life insurance rates reflect that.

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    2. Universal Life Insurance

    A universal life insurance policy is different in that it’s coverage is flexible.

    It can temporary or it can be permanent.

    It will depend on how the UL policy was funded by the life insurance policy owner. Typically, Universal Life insurance will fall under a much larger category of Permanent life insurance.

    A Universal life insurance policy builds cash value. This cash value can be withdrawn from the policy owner. A Universal life insurance policy can be invested in either a variable or fixed interest sub account. These permanent life insurance policies have a death benefit just like term life insurance. How they differ is that there is cash value or a savings component to them.

    Did you know? The cash value of your life insurance policy is tax deferred.

    The cash value and savings portion of the permanent policy accumulates for the life of the policy. It can build where cash can be withdrawn in the future. These policies can have penalties if you were to terminate them too early. A big part of the premium is towards the savings component at the beginning stages of the policy. 

    In the later years, when your cost of insurance becomes higher – a lower portion of your premium is placed towards cash value. More of your premium is going towards the purchase of insurance at the later years.

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    3. Whole Life Insurance

    Whole life is another type of permanent life insurance policy. Unlike term life insurance, whole life insurance is designed to provide a death benefit as well as living benefits.

    When it comes to debating term vs whole life: it comes down to policy benefits why whole life is better than term. The big difference is that whole life benefits can include eligibility to earn dividends, cash value access from partial surrenders and loans, and guaranteed cash value accumulation – as long as you pay your life insurance premiums.

    Your whole life insurance policy will provide you coverage for your entire life. When you’ve been approved for life insurance coverage, you whole life policy can’t be cancelled by the company as long as you pay your premiums.

    What if you were to become ill? Your whole life policy will remain in force even if your health fails.

    What about the cash value growth? What can you use it for? Your cash value can be used toward any purpose of future need via a whole life policy loan.

    Examples of policy loans;

    • College Tuition
    • Car Purchase
    • Home Down Payment
    • Retirement Income

    Your cash value can increase from the dividends when declared by the cash value life insurance company.

    >>Related Post: Term vs Whole Life Insurance

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    Michael Quinn

    Michael Quinn

    Michael is a licensed life insurance agent, expert & owner of Life Insurance Blog. LIB has helped thousands of shoppers understand life insurance and secure affordable coverage.

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