While there are many types of life insurance plans, they can be broken down to two types: permanent life insurance and temporary life. The only type of temporary life insurance is term life, while universal life is just one of several different types of permanent life insurance plans.
Features
Term life insurance is simple. The insured pays an agreed-upon amount of money for an agreed-upon amount of coverage for a specified period of time. The policy is not worth anything other than its death benefit. Like all permanent life insurance policies, universal life policies build a cash value from excess premium payments. Universal life is much less structured than term life, as the policyholder can adjust their premiums, which will affect the cash value of the account and possibly the death benefit.
Time Frame
Term life insurance policies are available in blocks of one year up to 30 years. You can have the option of automatic renewal when your policy expires, but the cost will be greater to account for the increased age of the policyholder. Universal life insurance does not have an expiration date, as the policy is designed to last for the policyholder's lifetime. Universal life policies can be terminated if the policy is surrendered.
Types
There are several types of term life insurance plans. These include level term, which has equal premium payments for the life of the policy; renewable term, which gives the policyholder the option of renewing the policy; and return of premium, in which the premium payments are returned to the policyholder if they are alive when the policy expires. There are two versions of universal life: straight universal life and variable universal life. Universal life policies tend to invest the extra premium payments in low-risk investments, while a variable universal policy will invest a portion of the money in stocks and bonds.
Considerations
Many term life policy holders can switch to a universal life policy, or any type of permanent life insurance policy, without having to undergo a physical examination or provide proof of good health. This is referred to as a conversion and is allowed by the majority of term life policies.
Significance
Universal life policyholders may increase the amount of the death benefit at any time, but it will result in an increase in premiums and could require an additional medical examination.
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