Difference Between Term, Whole, and Universal Insurance Plans

There are so many different types of life insurance policies. How does one know what the best policy is for their personal needs?

Term life insurance, whole life insurance, and universal life insurance — what are the nuances of each of these types of life insurance policies? Understanding the difference between these plans can help one compare options when buying life insurance. Also, one can find more in depth life insurance policy information on a particular type when they understand the basics, and have already decided that term, whole, or universal life insurance is right for them.

Information on Term Life Insurance

Term life insurance is generally the simplest and least expensive type of life insurance policy. It is life insurance for a given period of time. It however, offers the least in terms of long-term benefits and investment opportunities. In fact, a term life insurance is not a financial investment at all, but an investment in security and peace of mind — if a policyholder dies within the term of the life insurance policy, the face value will be awarded to the beneficiaries. On the other hand, if the policyholder does not die, once the term is over, there is no financial gain.

Term life insurance is often a fair option for people on a budget who only need insurance for one, five, ten, or even twenty years. The premiums are extremely low, and in general they do not increase during the term. Upon renewal, term life insurance premiums can increase dramatically however depending on the age of the policy holder.

Information on Whole Life Insurance

Whole life insurance is a more stable option as it provides life insurance coverage for the policyholder's entire life. There are different possible options within this type of life insurance, with varying methods of investment, and timing of payments. Overall, whole life insurance is a much more expensive and somewhat complicated alternative to term life insurance policies, but it provides a savings investment as well as secure life insurance coverage.

With a whole life insurance policy, a huge lump sum can be paid at one time, providing permanent coverage, and more than a substantial financial investment. Premiums can be paid every year, or up until a certain age. Also, some life insurance companies will allow a dividend payout option, known as participating whole life insurance, where dividends may be awarded to the policy holder, increasing the cash value of the policy. There are a number of different options within whole life insurance policies, but in general, whole life insurance is for people who require permanent coverage and can comfortably afford it. The investment side of whole life insurance is a way to increase savings and financial options in the future in exchange for paying higher premiums.

Information on Universal Life Insurance

Universal life insurance policies are similar to whole life insurance policies in that they are a combined protection and investment plan. Universal life insurance however is much more flexible. Life insurance companies provide this type of coverage to give prospective clients more choices and opportunities depending on personal needs and financial situations.

With universal life insurance, the policyholder decides the amount of money paid into investments over the price of the premium. As cash value accrues in the investment portion of the life insurance policy, the insured has the option of using interest earned to pay for part of the cost of future premiums, or increase the value of the life insurance policy. In a variable universal life insurance policy, there are different investment methods available for the policyholder to choose between, instead of the life insurance company deciding how the money is invested.
Tips for Choosing Between Different Types of Life Insurance Policies

When making a decision between the different types of life insurance policies, it is important to evaluate personal insurance needs and financial goals. Is life insurance needed only until the kids are finished with college? Then maybe an inexpensive term life insurance plan is a good idea. Is the goal to use life insurance as one of many options for building up a large nest egg for retirement or for estate planning, and substantial premiums are not a problem? Then perhaps a participating whole life insurance plan would work well.

Buying life insurance is a big decision, and potentially a long-term financial commitment. Evaluate present and future financial goals, individual insurance needs, and then start comparing life insurance policy quotes, and talk to agents. Once expectations and limits are established purchasing insurance is as simple as finding what one is looking for, and reading the fine print. With so many options between the different types of life insurance, the perfect policy for everyone is there to be found.

Source: suite101