Universal Term Life Insurance: A Comprehensive Guide

What is Universal Term Life Insurance?

Before moving onto universal life insurance vs term plans, let’s understand what this insurance type is.

Universal term insurance is a type of life insurance that combines financial coverage with a cash value component. Another benefit of this type is that the policy remains active throughout your life.

Further benefits are available in the form of premium adjustability, death benefits, and savings within a single policy. 

Features of Universal Life Insurance

Universal term life insurance plays a key role in financial planning and wealth management. It is a good option for those seeking both protection and investment opportunities in one place.

Here are the key features of universal term insurance —

• Flexibility to adjust premium amounts or payment frequency 
• Part of the premium accumulates cash value over time — this can be accessed through policy loans and withdrawals
• Get investment options for the cash value component like fixed interest accounts

How Does Universal Term Life Insurance Work?

Universal term life insurance works just like any other term insurance, although there is an addition of cash value.

Suppose you take a universal policy. You will then pay premiums, which will go for the life cover as well as investment. 

At the time of your demise, your family will get the sum assured, i.e. death benefits. However, since the policy keeps accumulating cash value, you can also access the benefits if you need a loan in between. Similarly, you can choose the option for regular payouts, if available. 

Here are some more points regarding the same — 

• You can lower the death benefits if your need for life insurance decreases over time 
• If you continue to make premium payments, your universal life insurance plan remains valid for a lifetime
• The policy has a cash value component — you can take money out of it via withdrawal or a policy loan against it 
• You can surrender a universal term life insurance policy to end the coverage. In this case, you will get the cash value after deducting any surrender charge.

What are the Benefits of Universal Term Life Insurance?

Here are the reasons to buy universal term life insurance —

• Financial protection for your family
• Cash value that grows over time 
• Option to get a loan against the accumulated cash value 
• Easily change the plan’s specifics as per your requirements by adjusting premium payments and death benefits

Cons of Universal Life Insurance

While universal term insurance brings a plethora of benefits, it has its own disadvantages as well — 

• Gains on cash value are not assured by all types of policies
• Policy loans and withdrawals deplete cash value — this can affect the amount that your family gets in case of your demise 
• Policy lapses when cash value falls to zero and premiums no longer cover the cost of insurance

Difference Between Term and Whole Life and Universal Insurance

While the differences regarding term life insurance vs universal life plans are usually clear, one may easily confuse the same with whole life plans. 

Let’s understand these differences better — 

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