Term Insurance Vs Universal Life Insurance: Which is Better for You?

A universal life insurance policy had been the norm when Nikhil was growing up, with everybody in his parents’ circle approaching the same investment agent to get their life insurance policies in order. However, when he started working and his company sought insurance policies for him, he realised that there were other forms of insurance he had never really heard of or even considered. The company’s insurance consultants informed him that his best option would be to choose between a term insurance plan or a universal life insurance. While Nikhil had known about universal life insurance policies his whole life, he decided to research and find out for himself the benefits of a term insurance policy as well. Instead of directly asking the agent as to which is better, term or universal life insurance; he decided to conduct some preliminary research of his own.

The main differences between a universal life insurance and a term life insurance policy relate to the duration of the term, cash value accumulation and cost.

Read on to learn about the major features of a term insurance and universal life insurance policies, and decide for yourself as to which is better: term or universal life insurance.

TERM LIFE INSURANCE

A term life insurance plan is the most basic form of life insurance. It provides coverage for a specific period of time, and is usually available for a fixed premium cost. It is a straightforward life insurance policy that provides coverage against death of the policyholder. Riders can be added alongside the life insurance policy to ensure coverage against accidental death or even critical illnesses. Term life insurance policies also may include provisions for a fixed income to the policyholder in case of them outliving the policy term. Insurers may allow for the term policy to be extended once it expires, usually at a higher cost since premiums cost lesser when the policyholder is young and relatively healthy. Term life insurance policies provide the highest coverage in terms of premium, because no portion of the premium paid goes towards savings or investments. However, since there is no lifetime coverage, the policyholder can expect to have the premiums increased at some point, possibly after 30 years which is the maximum extent of the term provided by most insurers.

UNIVERSAL LIFE INSURANCE

A universal life insurance policy is broader in terms of the coverage provided. These types of insurance policies usually combine the death benefit that is available to the beneficiaries of the policyholder with a savings component or cash value which can be reinvested and tax-deferred. The amount paid as premium towards universal life insurance policies is usually split into parts which go towards the death benefit, and parts that are used to supplement the policyholder and their family’s savings. Additionally, a certain part can also be invested into different instruments; the returns from which can be withdrawn by the policyholder at a later date. Such universal life insurance policies, thus, not only act as instruments for coverage but also help the policyholder and their family build up a substantial corpus either through savings, returns from various investments or through both. While at the beginning of the insurance term, especially if the policyholder is young at the time, the majority of the premium paid is diverted towards savings and investments. However, as the policyholder ages, most insurers advise directing a majority towards providing coverage. Most of the universal life insurance policies available in the market allow for flexible allocation of funds. As priorities change, policyholders can opt for a majority of the premium paid to be directed into their insurance cover and a lesser portion to be allocated towards savings or investments. However, a significant benefit that is universal life insurance policies offer over the term life insurance policies is that they provide lifetime coverage regardless of when the policy was started, assuming premiums have been regularly paid. However, if the policyholder ceases to make payments, their coverage amount will be affected. 

Both term life insurance and universal life insurance policies offer different benefits, and the policyholder needs to decide which more in line with their own requirements is. For instance, investing in a universal life insurance policy allows for a substantial corpus to be built up over time since a significant part of the premium paid can be diverted into savings or investments. Alternatively, their premiums towards providing death benefit could decline. With a term life insurance policy, the premium is wholly directed towards providing coverage to the beneficiaries in case of the policyholder’s death. The single focus allows the policyholder to decide how much coverage their family will require, pay premiums accordingly and they can separately invest in different investment instruments. At the end, deciding which is better term life or universal life insurance is on the basis of the coverage requirement sought by the policyholder and their family.

The Future Generali Flexi Online Term Plan provides policyholders with coverage of upto Rs.1 crore by paying premiums only at Rs. 16 a day. This insurance policy not only provides a basic life cover that is the norm, but also guarantees a monthly income to beneficiaries until such time as the policyholder would have turned 60 years of age.