Comparing Term Insurance vs Universal Life
When searching for life insurance coverage, the first thing to decipher is whether or not you wish to purchase term or universal life insurance. The words used might be intimidating but once you understand the basics of each, you can sit down with an insurance advisor and decipher which sort of insurance is best-suited to your circumstance.
Term life insurance is where you pay premiums for a specific period of time like 10, 20 or 30 years. Once this period elapses, the policy expires and must be renewed under different conditions and often with different premium rates. The premiums are all used to keep the policy active. This is the most basic life insurance policy that offers protection for your accidental death or injuries.
Though it gives comfort to the policyholder during its active term, term life insurance policy can be deemed worthless if your beneficiaries never get to benefit from it. Purchasing this policy when you are young is generally cheaper than any other life insurance cover. Older people are deemed to have a higher risk and thus pay higher premiums.
Universal life insurance offers permanent life insurance cover. This comes with death benefits and a savings component with a cash value that grows over the duration of the active policy and is tax deferred. A loan can be accessed using this cash value. The policy holder also has the option of cashing out the policy anytime following its obtainment.
Another advantage of universal life insurance is the flexibility it offers to its policyholders. Particularly, with the premium payments and death benefits. The policyholder can within years, accumulate a cash value that covers the death benefit and future premiums. As the policy grows, the yearly renewable term shows that the cost of insurance becomes higher as the aging insured person is deemed more likely to pass away.
If you are a young couple with a young family you may find it more useful to acquire term life insurance as it would seem more likely that you won’t need the insurance as much when your children have successfully grown and flown from the nest. But if you accumulate a large estate it would be of better benefit for you to get universal life insurance as the cash value would be able to set off any estate taxes due after your death. A disabled child who may never be able to support themselves in adulthood could also greatly benefit from the benefits of a universal life insurance policy.
With this information you can work together with a guide like an insurance advisor from Toronto Life to find the best fit for you and your loved ones.
