Term Vs. Universal Vs. Whole Life: Identifying the Different Kinds of Insurance

Death is something that a lot of us don’t like thinking about, but the fact remains that we all reach that end sooner or later. It’s such a morbid thought to start off this article with, we know, but the sooner we accept that reality, the better. An attitude of acceptance allows us to plan better for ourselves and for the benefit of those we leave behind.

Signing up for life insurance is the best possible thing you can do to get ready for whatever surprises life may bring us, and those “surprises” include illness and even possible death. But like other things in this world, insurance comes in many forms. The following are three of the most common types of insurance, and it’s best that we learn to differentiate them from each other.

• Term Insurance

Term policies are just that—they’re policies that are issued for given periods of time. Some of the most commonly issued periods are for 10, 20, and 30 years. Term insurance is sometimes called “pure life insurance” because its essential function is simply to provide financial protection for your beneficiaries in the event of your death. If you die during the indicated period of time, your death benefits go to your beneficiaries. However, if you don’t die during the said term, the policy will simply expire and you don’t receive any of the benefits.

One advantage of term insurance is that the premiums remain relatively the same all throughout the term, which certainly ensures cost certainty.

• Whole Life Insurance

Unlike term insurance, whole of life insurance lasts for exactly that—your whole life. Because it lasts much longer, it’s understandably more expensive. However, along with the higher premiums come a host of advantages. For one, the premiums you pay have the capability of building up cash value over the years. Such growth can be tax-deferred and is accessible to you over the life of your policy. If you don’t use the said cash before you pass away, it is then distributed to your beneficiaries, along with the initial cost of the policy..

In this type of insurance, excess premiums are invested by the discretion of the insurance company. As a result, you get to enjoy having relatively steady premiums for the rest of your life.

• Universal

Like whole life insurance, universal insurance is permanent, and you can also build up cash value over time. But that is where the similarities between the two kinds end.

They have many differences between them, but some of the biggest ones are the handling of the premiums and the management of the excess. With universal life, you are allowed to make premium payments at any time you want to and in any amount. This flexibility is why some refer to this type as “adjustable insurance.”

However, with this kind of policy, you need to keep on sending in your premiums and avoid withdrawing the cash value accumulated over the years, as doing so can affect your said coverage.

Choosing the Right Insurance for You

When it comes down to picking the right type of insurance, it’s all about your ability to determine what your needs and circumstances are and how a certain policy can work well for you or against you. It takes a lot of discernment, but with guidance from the right people, you can do it.