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eLearning Series:
Your Most Popular Insurance Questions
Answers For Health and Home
Insurance
( 50 articles
in this series )
Choosing Between
Universal
Life vs. Term Life Insurance
Choosing between universal life and term life
insurance can be one of the most confusing, yet consequential,
challenges a person can face during his or her lifetime. The
wrong policy might leave a family without the financial benefit
it really needs following the death of a loved one or can burden
the family with excessive, unnecessary coverage at a hefty
cost to their fiscal well-being. It is possible, however, for
the consumer to avoid such costly mistakes by doing a little
bit of research and planning on his or her own. Only then can
a responsible choice be made.
Before a choice is made between universal and term life insurance,
the consumer should determine whether or not he or
she actually needs life insurance. Basically, if the consumer’s death would
cause a financial burden for his or her family, then life insurance
is a must. Examples of the types of financial burdens to be
concerned about are: funeral costs, college tuition, left-behind
credit debts, tax debts and mortgages. Generally, for a single
person with no children or dependents, life insurance is completely
optional. Once the decision to purchase life insurance has
been made, then the consumer must determine which type of policy
is the right one for them. A referred, reputable agent can
help a potential policyholder wade through the benefits and
costs of multiple policy types.
Universal Life Insurance
A universal life insurance policy, also referred to as a “cash
value” policy, is for the consumer whose financial planning
considerations extend far into the future. This type of policy,
of course, will pay any necessary death benefits, but it also
provides the policyholder with an additional financial advantage
- a tax-deferred savings account. Although one must generally
hold the policy for at least 15 years in order to see any return
from the savings account, it does provide the policyholder
with a stable long-term investment that can be cashed out or
borrowed against, if necessary. Many financial experts recognize
the investment benefits of a universal life policy as sound,
while others argue that there are better investment options
available to the educated consumer.
The coverage amounts provided by a universal life policy remain
consistent throughout the years, as do the premium rates. These
premium rates tend to be higher than other policies (the agent
commissions and fees have much to do with this), but under
some plans, the rates drop as the policyholder ages and might
even disappear completely. There are no renewals to deal with
unless the policy is allowed to lapse.
Term Life Insurance
A term life insurance policy is one of the most flexible and
economical types of life insurance coverage available. This
type of policy is for someone who seeks basic coverage for
a pre-determined period of time and is not looking to combine
this coverage with a savings account - those who choose term
coverage often have investments elsewhere. The lack of an accompanying
savings account means that the premiums for this type of coverage
are relatively low but it also means that there is no return
on any of the money paid into the policy over the years.
The premium rates for a term life policy are dependent upon
the policy chosen. Policies can usually be purchased for periods
of 10, 15, 20, 25 and 30 years and may be renewable. Apart
from the low rates, the variety of term periods available is
one of the most attractive aspects of the term life policy
and offers a lot of flexibility to the policyholder. For example,
if a couple has a child entering college and wants to ensure
that his or her tuition will be paid for in case of their deaths;
they can purchase a term life policy that would cover that
child’s college years. There would be no reason to purchase
a lifetime policy for a short-term need. Policyholders can
also choose term policies with increasing or decreasing coverage.
One
of the disadvantages of a term life policy, however, is
the inconsistency of its rates. While the premium rates do
start out very low, they usually increase as the policyholder
ages. Additionally, if the policyholder wants to renew after
the initial term is complete, the fees associated with the
renewal (because of age health, etc.) may be prohibitive.
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SolveYourProblem.com : 2005
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