Term Life, Whole Life and Universal Life Insurance Explained

There is always some confusion among term, whole and universal life insurance. All these insurance types are normally offered by insurance companies and insurance brokers, but how do they differ from each other? We will clarify the differences in this article.

First of all, one needs to understand the overall classification of these insurance types. As per the chart below, there are two basis insurance types, term and permanent, and they are based on coverage length: if coverage is available for a period of time, or until death. Furthermore, permanent insurance can be split into whole life insurance and universal life insurance.

Now we will dive deeper into the difference among these three types of insurance.

Life Insurance Types – Length of Coverage

One of the key differences is how long each policy covers you (or, in insurance words, the “policy term”). For example, Term 20 means that an insurance policy provides coverage for 20 years.

Life Insurance Types – Product Type

In general, insurance products can have two major components: the insurance component that protects the policyholder, and a savings component that accumulates wealth.

Here are the main differences among three insurance products:

Insurance Rates for different Life Insurance Products

Insurance rates and so life insurance quotes differ from policy to policy and they are strongly driven by product type, but also by the profile of the person getting life insurance (e.g. current health status, family medical history, heath pre-conditions, smoking vs. non-smoking, age, etc.)

If we compare the same insurance policy (meaning the same policy coverage), then the situation looks like the following:

The chart above shows that at the beginning of your payments (when you are younger), term insurance typically costs less, but the rate goes up with each renewal. You would still have an option to get a term life insurance policy with a renewable option, basically guaranteeing you the rate at each renewal point. This helps you avoid unexpected increases while getting a new term life insurance quote.

Comparing Renewals for Different Life Insurance Products

Given their nature, these products have a very different approach to a policy renewal:

Typical Scenarios for Choosing Each Life Insurance Policy

As these policies are quite different, so are the situations when you should consider getting them.

In the end, it is your decision which insurance product you choose, depending on your financial situation and preferences. Many financial specialists (e.g. Suzy Orman), though, tend to keep a clear separation – suggesting you purchase insurance for protection only and let an investment specialist invest the difference between term and permanent insurance.

If you still prefer to get protection for life but are not excited about universal or whole life insurance, look into Term 100 insurance that covers policyholders for life (premiums are paid to age of 100) and typically pays benefits at age 100 if a policyholder is alive.

There are several ways how you can get a no medical term life insurance quote, whole life insurance quote or universal life insurance: through an insurance agent, insurance broker or directly by calling an insurance company (via a call centre). The most advisable way to go is an insurance broker because he/she can compare offers from many insurance companies and find for you’re the best price – get your life insurance quote today and start saving.