Life Insurance:

Term or Universal?

Deciding on the wrong life insurance plan might leave a family without the financial benefit it's going to need following the death of a loved one. Or it can burden the family with excessive coverage at a cost that threatens their ongoing fiscal health.

Choosing between term and universal life insurance plans can be the source of 1 of the most significant yet confusing lifetime judgments. Only with some research and planning can a responsible choice be made for consumers to avoid such costly mistakes. Before a decision is made between term and universal coverage, consumers need to determine whether or not life insurance is actually needed.

When you come right down to it, if death would cause a financial burden for the family, then life insurance is critical. Examples of the financial burdens to be concerned about include funeral costs, college tuition, and outstanding credit, tax and mortgage debts. For single people without children or dependents, life insurance is really optional.

Once you've made the decision to buy life insurance, then it's time to determine which kind of policy is right. This is when you need a reputable insurance agent, referred to you by someone you trust. The agent can help you deal with the details of the various benefits and costs of multiple policy types.

Term Life

Term life insurance policies are among the most flexible and economical types of life insurance coverage available. These policies are designed for those who want basic coverage for a pre-determined time period without a savings account built in. People who choose term coverage often have other investments. The lack of an associated savings account also means that there will be no return on the money paid into the policy over the years.

Premium rates for a term life policy are dependent upon the policy. Policies are usually purchased for 10, 15, 20, 25 or 30-year periods. They may be renewable. Apart from low rates, the variety of term periods is 1 of the most appealing features of term life policies and offers lots of flexibility to policyholders.

For instance, a couple with a child entering college who want to ensure that tuition will be paid for in the event of their death, can purchase a term life policy that would cover the child during the college years. There is no reason to purchase a lifetime policy for a short-term need. Term policies with increasing or decreasing coverage are also available.

A disadvantage of term life policies is the inconsistency of their rates. While premium rates start out very low, they usually rise as policyholders age. Also, policyholders who want to renew after the initial term has ended, may find the renewal fees prohibitive.

Universal Life Insurance

Universal life insurance policies, also referred to as "cash value" policies, are ideal for consumers whose financial planning considerations are long-term. These policies will pay any necessary death benefits, but also provide policyholders with an additional tax-deferred savings account advantage. Generally these policies must be held for a minimum of 15 years before resulting in any return from the savings account. They provide policyholders with a stable long-term investment that can be borrowed against or cashed out.

The premium rates and coverage provided by universal life policies remain constant throughout the years. Premium rates tend to be higher than with other policies, largely due to agent commissions and related fees, but under some plans the rates drop as the policyholder ages and may even disappear altogether. Unless the policy lapses, there are no renewal fees to contend with.

While some financial experts argue that there are better investment options available for educated consumers, many recognize universal life policies as having sound investment benefits.