Term life insurance
Term Life insurance is the simplest form of the insurance. You pay monthly or yearly premiums for a given term and have a coverage for that term with premium being the same throughout the term.
Universal life insurance
Universal life insurance provides lifelong insurance protection, as well as an investment component with tax advantaged protection. You can choose and manage the investments based on your risk tolerance and objectives.
How term insurance work?
Term insurance is most affordable life insurance that provides the coverage for a specific term. It is generally used when insurance needs are higher and temporary. For example, to cover mortgage, loans, children’s education etc. it is more of an income replacement plan, which means, if you are not around proceeds from your insurance coverage will pay off all the debt like mortgage, personal loans auto loans etc. enough money for kid’s education saving, and additional money for your families day to day living that you would have earned by working. You can choose how much coverage you need and for how long. Term could be 10, 15, 20,25 years or it could be to age 65. Important thing to keep in mind is term insurance does not provide the coverage for life and cost of insurance will increase with each renewal. Term life insurance is the best solution to provide higher coverage at lower cost.
How does Universal Insurance work?
The main advantage of the universal life insurance is the flexibility that it offers. All the premiums you pay in this insurance accumulates into a policy fund. This fund is used to pay for the cost of the insurance coverage. The balance that remains is invested, on tax advantaged biases into the investments of your choice based on your risk tolerance and objective. The growth of this account would depend according to the performance of the investments, as well as the size of the premium payments.
The money that is left in the investment account can be utilized to help make future payments for the premium once there is enough, or it can even act as a saving for the future. You can borrow against that money, or withdraw it in a time of need. You can even leave it for your loved ones if you have designated them as beneficiaries. If you withdraw from this account, the value of the policy will decrease, and it will also reduce the money that the beneficiary gets in case of your death. Universal Life is best option for the permanent life insurance needs like estate planning, if you like flexibility and want to have more control over your investments.