Know Your Life Insurance Policy-Universal or Term?

When shopping for life insurance, or when renewing your current insurance policy, it is important that you fully understand it, and know exactly what coverage you have, should something happen to you. There are two basic types of policies, universal and term. Both policies are intended to help family members left behind after the death of a loved one. You should know however, that there are many differences between these two types of policies. Take the time familiarize yourself with these differences, so you can decide which policy type will be best for you and your family.

 

For most, life insurance is considered to be a necessity, especially those people who have a spouse or children to support. If you live alone, and have no family that would be in a financial strain because of your death, then you should access your situation, and determine whether or not you think you need life insurance coverage.

Both policy types, universal and term, cover all death related expenses, including funeral costs. And outstanding debts, etc. How these expenses are dealt with is where the differences in the two policies start to show.

Universal life insurance policies have cash value. You receive a tax-deferred account for savings, and your family will receive the full benefit of coverage at the time of your death. You can take a loan against this policy, and you can cash it out, in the event of an extreme financial emergency, although this is not usually advised. Your premiums due will stay the same amount for the life of the policy, as will your coverage amounts, unless you decide to make changes in the plan. Premiums will get lower in some circumstances, but they never increase. This policy stays in effect until you die, as long as premiums are maintained.

Term insurance isn’t a long-term option, and in most cases, the longest coverage time is about 20 years. Since the policy is only in effect for a limited amount of time, the premiums are usually much lower with term coverage than with universal policies. There is no cash value in this type of life insurance policy. The term is renewable, but as you age, premiums will increase. Renewal fees also apply.

When choosing or evaluating your life insurance policy, keep in mind the differences between universal and term coverage, so you can decide what plan is right for you. It can be confusing trying to decode insurance lingo, but the more you know, the more in control of your future you are! To provide protection for your family in the event of your death, a good life insurance policy should be considered essential!