Universal vs. Life Insurance: What's Difference?

Universal vs. Life Insurance: What's Difference?

Universal and life insurance policies have their benefits, so before purchasing your insurance from life insurance companies, and choose accordingly.

Life insurance is a form of insurance in which you, the insured person, pay premiums to protect your loved ones if anything tragic happens. Universal Insurance is also another form of life insurance. Still, it is very different from traditional life insurance, and everyone needs to be made aware of this difference for their benefit. Read below to learn more about how universal insurance differs from traditional life insurance. Get insurance that's suited to you from life insurance companies.

What Is Life Insurance?

It is a kind of insurance that gives coverage for your life as long as you pay the premiums. So, you could purchase this type of policy to protect yourself or your family if something unfortunate were to occur. In addition, it is often used to cover end-of-life costs and other burial expenses.

What Is Universal Life Insurance?

Universal Life Insurance (UL) is a life insurance product that combines permanent and term insurance. If you die, your recipient will receive the face value of your policy or some predetermined cash value. The money they receive depends on the performance of the investments within your Universal Life Insurance policy.

Difference between Universal Insurance and Life Insurance

The main difference between universal and life insurance is that one product will provide you with a cash value while the other gives your beneficiaries a certain amount of money.

A traditional life insurance policy has permanent coverage as long as you pay your monthly premiums. If you pass away, your beneficiaries will get the full face amount of your policy or a certain amount of cash value.

On the other hand, universal insurance does not have a cash value until later on. Therefore, you can fund your policy once or twice with just one payment or by making small payments every so often. This type of policy never expires as long as you continue to pay your premiums and will grow based on how well your investments do.

The pros and cons of Universal Insurance and Life Insurance

Pros of Universal Insurance

  • You can fund your policy once or twice with just one payment.
  • Your cash value will grow over time.
  • Your policy never expires as you continue to pay your premiums.
  • You can build a strong cash value that you can borrow from if necessary.
  • Your beneficiaries will receive the face value of your policy (or some predetermined cash value) when you die.

Cons of Universal Insurance

  • Your cash value is not guaranteed.
  • There are fees associated with your policy that you have to pay.
  • Interest rates are low, and there is no guaranteed interest rate.
  • There are fees to maintain your policy (e.g., mortality and expense charges, administrative fees, etc.)
  • Your cash value may not be enough to cover the costs of your funeral.

Pros of Traditional Life Insurance

  • The insurance company will guarantee that your beneficiaries will receive the face value of your policy in case you die.
  • The premiums are relatively cheaper than universal insurance.
  • You can choose that fits your budget and then convert it to a permanent policy later on if you so desire.

Cons of Traditional Life Insurance

  • Your premiums will become high as you get older.
  • The policy's face value is not the same as the cash value.
  • Your beneficiaries may receive very little money after you die if there is a loss on investments and interest rates are low.
  • You will pay taxes on any money that you withdraw from your policy.

Which type of policy is right for you?

If you are searching for something that will provide you with a cash value right away, then universal insurance might be the best option for you. If you are looking to pay less in premiums each month and get your premiums back when your policy expires, then traditional life insurance is probably the way to go.

The decision between universal and life insurance will ultimately come down to your personal preference and what you are looking for. With a traditional life insurance policy, you don't have to worry about fluctuations in the market or interest rates because those things do not affect how much money your beneficiaries will receive (unless your investments lose all of their value).

Final Verdict

When you are trying to decide between universal insurance and life insurance, you should consider the differences in cash value versus face value. Universal insurance works best if you would like something that gives your beneficiaries a predetermined amount of money rather than giving them the policy's total value.

However, traditional life insurance is an excellent investment vehicle that can be converted to a permanent policy if you so choose. You can get your premiums back at the end of your term, providing no loss in interest or investments.

Remember, when you buy your insurance from life insurance companies, it is essential to do your research, so you understand how much money you will be receiving when you die and what happens with the cash value of your universal insurance policy.