What is the Difference Between Universal & Term Life Insurance?

Your family’s financial security is ensured by life insurance in the case of your passing. It provides them with the financial support they need to pay for various expenses, including outstanding bills, burial fees, and daily living expenses. When considering life insurance, there are many different sorts to choose from, with traditional life insurance and term life insurance being two popular choices. Each of those options offers special features and advantages that meet particular financial needs and preferences.

Let’s explore what is the difference between universal and term life insurance.

What Are the Differences Between Term and Universal Life Insurance?

Term life insurance contracts, as their name implies, cover you for a predetermined amount of time (term) as long as the premiums are paid. The normal length of a term contract is 10, 15, 20, or 30 years.

The premiums for term life insurance are frequently far less than those for permanent life insurance, which does have a cash value but does not accrue cash value. Most contracts are given with level death benefits, however if you have a growing term contract, you might be able to enhance your death benefit sometimes.

what is the difference between universal and term life insurance
what is the difference between universal and term life insurance

Contracts for universal life insurance offer protection with adjustable rates. Universal life insurance is a form of permanent insurance since the agreement endures so long as there is sufficient cash worth to meet monthly deductions. Additionally, they enable you to build up a cash value that can be used at any moment during the insured person’s lifetime to pay for unexpected costs or even add to retirement income.


Term Life

Universal Life

Flexible Premiums No Yes
Accumulate Cash Value No Yes
Duration Fixed Period Varies – Can be life time
Premium Feature Yes No


The Working Policy of Term Life Insurance

The most fundamental kind of life insurance is called term life. It offers protection for a predetermined amount of time. Your dependents will receive a payment if you pass away before the term is up as long as you continue making premium payments, which are typically more inexpensive than permanent insurance. Some insurance plans offer supplementary coverage for accidental death as well as coverage for loss of limb.


How Universal Life Insurance Works?

Universal life insurance is a type of permanent life insurance also referred to as cash value insurance. These types of insurance plans, like other life insurance, provide a death benefit that is paid to beneficiaries upon the death of the policy holder, but unlike term life insurance, they are permanent in nature.

A savings component, or cash value, of universal life insurance also accrues over time on a tax-deferred basis. You can frequently borrow against the cash value of your insurance policy, for example, to pay for other expenses. When you cancel a universal life insurance policy early, you typically pay penalties because these plans are intended to run until the policyholder’s death.

Moreover, a sizable amount of the policyholder’s premium payments over the first few years will go towards the savings component. More of each payment will go towards the cost of insurance and less will go towards savings during the latter years, when the policyholder is older and the cost of insurance is higher.

Example of the Differences with mathematically between Term and Universal Life Insurance

The cost of term insurance tends to go up as you become older, whereas the cost of universal life insurance stays the same. For instance, a term insurance premium for a 21-year-old might be $20 per month for a specified amount of coverage.

For the same amount of coverage under a universal policy, the 21-year-old might pay $100 per month, of which $20 would go towards death payments and the remaining $80 would go towards savings.

When a person reaches the age of 45, term insurance may cost $50 per month, whereas universal life may continue to cost $100 per month, though a smaller percentage of that sum would go towards the cash savings component and a greater portion would be used to account for increased risk.

Which One to Choose in between The Universal & Term Life Insurance?

The choice between term and universal life insurance ultimately comes down to personal circumstances, risk tolerance, financial goals, and family concerns. It’s crucial to carefully weigh both possibilities, taking into account aspects including the family’s demands, age, health, and long-term financial plans. By doing this, people can make sure they have the insurance coverage that best suits their individual needs and gives them and their loved ones peace of mind.


To sum up, it is essential to comprehend the differences between universal and term life insurance in order to make wise choices regarding one’s financial future and the safety of loved ones. Both types of insurance have the same goal—to provide a death benefit—but they serve distinct purposes and have different priorities.

That’s All-

Thank you!


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