Universal Life insurance vs Term life insurance, What’s Better for You
It is important for one to get life insurance coverage. Life insurance cushions the blow for the bereaved once the breadwinner passes away. There are a lot of companies that deal with life insurance, each having different policies to cater to different needs. Nevertheless, there is a wide range of life insurance products present in the market. The best life insurance coverage is the one that caters to your needs while still giving you great value for your money. In this post, we’re going to focus on Guaranteed Universal Life Insurance vs Term insurance.
What is Guaranteed Universal Life Insurance?
Guaranteed universal life insurance offers coverage that lasts for the entirety of one’s life, you do not need to keep reapplying. It is a combination of the existing types of life insurance, both the universal and the term life insurance. The premium is fixed throughout the life of the policy, it offers the clients benefits that are tailored for their age and finally, the guaranteed universal life insurance does not have high management fees when compared to other life policies.
This insurance policy is very flexible as it allows one to customize the options to fit perfectly to his or her needs. It gives you the freedom of dabbing in both permanent and term life insurance. With this provided to you, you can be at an advantageous standpoint of coming up with the desired attributes from both types of insurance to suit your wants.
What is term life insurance?
It is life insurance that has guaranteed payment of the death benefit stated in the policy during a specified term. In addition, it is the most basic insurance policy. It is a life insurance policy that provides coverage for a specific period of time and usually for a fixed premium. Some policies provide coverage for dismemberment and additional coverage for accidental death. Once the coverage has reached its inevitable end then the holder has the option of renewing it for another term, convert it to a permanent coverage or terminate it there and seek coverage elsewhere.
Term life insurance is also known as pure life insurance. You might ask why, and this is the reason. The term life insurance has no other on the side value apart from the guaranteed death benefit. No savings component is attached to the policy as seen in the universal life insurance type of coverage. Its sole purpose is to give coverage against the loss of an individual’s life. The cash from the benefit can be used by the beneficiaries to cover the burial costs, pay mortgages or settle other outstanding debts. All premiums cover the cost of insurance, and that is all.
How they are the same
Guaranteed universal life and term life insurance have a few similarities which are explained below.
They both got a guaranteed payout in case of the death of the policyholder. This is to be granted to the beneficiaries when the policyholder dies. This is pretty good because your loved ones can have total peace of mind.
Premium guaranteed level
They both have premiums that are set at the beginning of the policy and remain constant or unchanged through life coverage.
Simple policy design
The way they are formed, that just simple to breakdown as they mostly cater to the death benefits. The length of the term is directly proportional to how expensive the policy will be. These policies are not complex whatsoever. This means anyone can easily understand their structure and design
No cash value
The policies do not give room for the generation of returns on savings. This is a unique attribute that is found in both term life and guaranteed universal life insurance. If there happens to be a cash build-up, it is used to keep the levels of premiums.
How they differ
As they have similarities, these two insurance policies also have their differences.
The cost on premium
Although guaranteed universal life insurance is much cheaper than whole life insurance, it is still more expensive than term life insurance. If you need to really minimize the amount you spend on life insurance each month, go for a term life insurance policy.
The most common term periods in the term insurance coverage are fifteen, twenty and thirty. In the guaranteed universal life insurance you can actually dial in the desires age you desired to be covered up to, ranging from the age of ninety to the age of one hundred and twenty-one.
Even though guaranteed universal life insurance might get expensive and surpass the term life insurance, on the upside the beneficiaries will get to enjoy a tax-free death benefit. Which is not the same for term life insurance.
Death benefit allocation
For the term life insurance, the death benefit is only paid if the policyholder dies within the term period, otherwise, the policy might not yield any death benefit if the holder outlives the policy. For the guaranteed universal life insurance it is hard to outlive the policy so in most cases the policyholder’s beneficiary gets to enjoy the death benefit.
Pros and cons of the guaranteed universal life insurance
While it may be similar to other types of insurance policies, guaranteed universal life insurance has its unique qualities. These are the things that set it apart from other policies and in return bringing about its strengths and weaknesses. Below are the pros and cons of GUL.
It is designed in a manner that allows you to tailor the policy to fit your financial needs. The length of the coverage can easily be customized too.
The cost of premium when compared to the other life insurance coverage it is very cheap. It is considered a great and also pocket-friendly insurance package for seniors above the age of sixty-five
No renewal of term policy
The most outstanding perk that comes with guaranteed universal life insurance is the fact you will not be bothered by the idea of renewing term policies. You can stick to one policy until your untimely demise.
You might think, with all the information handed to you about guaranteed universal life insurance, it is the perfect coverage with no faults but it definitely has some downsides to it.
The guaranteed universal life insurance coverage may offer an individual with investment opportunities but this might come to bite you, as it may generate some unwanted management fees.
Difficulty in cancellation
It is very expensive to go through with the termination of a guaranteed universal life policy before the term ends. Such an act will bring about some hefty surrender value charges.
No cash value
The guaranteed universal life insurance in most times does not have the cash value. The cash value mostly comes about from the return on investments, that one automatically gets from a universal life insurance policy.
Pros and cons of term life insurance
Term life insurance is designed for temporary coverage without the burdening time-consuming hustle that comes with permanent policies.
Best value for your money.
The main pro of term life is that you’re buying pure life coverage without incurring additional charges for potentially unnecessary features involving savings and investment. As a result, for the premiums paid out, you are getting maximum death benefit at minimum upfront cost.
The major disadvantage that comes with these type of life policies that are temporary, is the fact that the policyholder gets a hard time in deciding how long they might need the policy. It is quite difficult to predict your future.
No return on savings
Most people like the idea of a growing investment attached to the insurance coverage at hand. With term life insurance there is no savings or investment component. As the policy expires before your demise it will all just seem like a waste. In short, it does not accumulate capital.
Term life insurance has no aspect of flexibility. The policy that has been agreed upon will be in effect until the expiry of the coverage. There is no such thing as an option to increase premiums should you later decide to do so.
Which One is For You?
At some point, the age of the policyholder can disqualify him or her from getting a term life insurance policy. When the age goes beyond eighty-five then getting a term policy is unavailable, and the premiums become more expensive with age. Health that is considered less than perfect might also make the premium skyrocket, chronic ailments tend to be prevalent in the old.
On the other hand, guaranteed universal life insurance is mostly recommended to the seniors as it has some appealing aspects found in both the term and whole life insurance. It is definitely affordable,
It is technically not considered permanent life insurance because you select the length of the policy, though the policy length is expected to exceed the life of the policyholder. The guaranteed life policy may be ideal for seniors who want to leave a legacy to beneficiaries and to help pay for final expenses but who are also on a budget and seeking a more affordable life insurance premium.