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Dawson and Rosenthal
Dawson and Rosenthal

Term vs. Whole Life vs. Universal Life Insurance

Life insurance can seem complicated at first glance, with so many different types of policies available. A life insurance primer – on the most common kinds of coverage, the advantages and drawbacks each offer, and examples of when you might need each – can be helpful in determining which policy is right for you and your family. 

Term Life Insurance

As the name suggests, a term life policy lasts for a specific term—typically from one to 30 years. Most often, employers offer term life insurance for employees as part of their benefits package, although not all term life policies originate from the employer-employee relationship. 

Why buy it? Term life has a couple of big advantages over other types of coverage, with the biggest being its cost. It’s generally the cheapest type of coverage, although the age of the policyholder and other factors determine exact costs. It’s also one of the easiest types of coverage to get, with some policies available without a medical exam.

What are its cons? Term life insurance has a major con when stacked up next to permanent or whole life insurance. If you survive your policy term, your beneficiaries do not get a payout. The policy expires when the term is over. 

Who needs it? Term life is good coverage for people who have short-term financial obligations, such as people who are paying for a house or other major expenditures. 

Whole Life Insurance

Whole life is also called permanent life insurance. It’s in force (pending your payment of premiums, of course) until you die—or your whole life. Premiums for whole life insurance stay the same for life, and the policy builds cash value with a guaranteed return.  

Why buy it? Whole life insurance covers you for your entire lifetime if you don’t allow coverage to lapse. Your policy builds cash value that you can tap into if you need money on down the road without affecting your home equity or taking out a loan. Your premiums are fixed, regardless of any fluctuations in market conditions.

What are its cons? Whole or permanent life insurance is more expensive than term life.

Who needs it? If predictability matters to you, then purchasing a whole life policy may be right for you. You can count on fixed premiums and a death benefit guarantee. 

Universal Life Insurance

Universal life insurance is also permanent life insurance. Fulfill the requirements of the policy, including the payment of premiums, and your universal life insurance remains in force. This type of policy also builds cash value, and it pays your beneficiaries a death benefit when you pass away. 

Why buy it? There are a number of reasons that universal life insurance may make sense for you. You can withdraw money from the policy or borrow against it whenever you need to, and your policy’s cash value earns interest. Premiums are usually flexible, and the death benefit can be adjusted if your circumstances change. The latter is the main difference between whole life and universal life. Whole life policies are fixed for the policy’s duration, in both terms of premiums and death benefit.

What are its cons? The expense of universal life is its biggest pitfall. 

Who needs it? Universal life may be right for you if you are looking for a policy that will last your whole life. It’s also a smart choice for folks who want to enjoy tax-deferred savings and access to cash they can borrow against or withdraw if the circumstances warrant it. 

Wronged by Your Life Insurer?

While most insurance companies act honorably and professionally, that’s not always true. If your life insurer acted in bad faith, reach out to us for help. Our team works diligently to hold insurance companies accountable to their policyholders.