Difference between term and whole life and universal insurance

How does term life insurance work?

Term life insurance typically lasts for 10, 20, or 30 years, depending on how long you want coverage. If you die while your policy is still active, then your beneficiary receives the death benefit payout. Since it lasts for a set period of time, term life is more affordable than permanent life insurance but still offers similar payout amounts.

Term life can also be purchased to supplement permanent life insurance during certain life events, such as buying a home. If something were to happen to you, your family could pay off the mortgage with the death benefit from your term policy, leaving the payout from your permanent policy for other expenses.

When should I consider term life insurance?

Term life is a good way to ensure your family will have enough money to cover large expenses, such as a mortgage or a child's tuition, if you were to die unexpectedly. For example, you could take out a 20-year term life policy while your kids are young, giving your family financial security until the kids grow up and move out of the house.

Term life is also a common choice for individuals that have taken on added debt. For example, someone who has just purchased a home might take an additional term life policy to cover the cost of the house until it is paid off. A permanent life policy alone might not be enough to pay for the home and any final expenses.

How does permanent life insurance work?

Permanent life insurance provides lifelong coverage as long as you pay your premiums. No matter when you die, your beneficiary will receive the death benefit payout. The primary kinds of permanent life insurance are:

• Whole life insurance: This type of policy lasts for the lifetime of the insured party. It pays a death benefit but also has a savings component that lets cash value build, which allows you to take out a loan against your payout amount.
• Universal life insurance: This type of policy offers you the flexibility to change your death benefit and adjust your monthly premiums. Like whole life, universal life can also build cash value that you can borrow against.

Important note: If you withdraw or borrow against your policy's cash value without repaying it, you will reduce the cash value and death benefit of your policy.

When should I consider permanent life insurance?

Permanent life insurance is often selected at an early age with the intent of covering final expenses and leaving an inheritance to loved ones. Many people choose permanent life insurance to ensure their funeral costs are covered, as well as to gain more financial flexibility through the added cash value benefit. On a side note, final expense insurance can be an affordable alternative for covering your funeral costs.

In addition to the added cash benefit, whole life insurance offers set premium rates and lasts for your entire life, so you won't have to worry about higher policy rates down the road. The same goes for a universal life policy, except you can actually change your premium payment.

If you're still unsure what type of life insurance is right for you, talk to one of our experts at 1-866-912-2477. They'll offer advice, show you your options, and let you compare quotes.

What is whole life insurance?

A whole life insurance policy offers lifelong coverage and a death benefit that your heirs may claim regardless of when you pass away (if you have paid your premium on time). It's the most common permanent life insurance type. Whole life might appeal to you if you're seeking:

• Protection for your loved ones for your entire life
• Set payments
• A fixed interest rate on the policy's cash value

Fixed interest rate

One of the key features of permanent life insurance is the policy's cash value, which grows over time and allows you to borrow from it in the form of a life insurance policy loan. With a whole life policy, the money from the cash value will grow at a fixed rate, making it simpler and more predictable than other permanent life insurance types.

With whole life insurance, if you reach the insurer's maturity date (usually set for when you're 100–120) and your cash value equals the death benefit amount, your insurer will terminate the policy and pay out the coverage amount directly to you.

Learn how burial insurance works as a specialized type of whole life insurance.

Universal life insurance, also called UL or adjustable life insurance, is also permanent and will last until you pass away if your premium payments are up to date. Unlike a whole life policy, UL includes features that allow you to adjust your policy. For example, you can increase or decrease your premium or even skip payments if your cash value amount can cover the payment for you. Additionally, the cash value of a universal life policy can increase your death benefit when you pass away.

Unfixed interest rate

Unlike whole life insurance, a UL policy's cash value has an interest rate that's partially based on market conditions and will change over time. You'll have a guaranteed minimum interest rate, though.

Universal life policies are best if you want permanent coverage and a more hands-on approach to managing your life insurance policy. Its cash value carries greater risk and possibly more fees but greater potential reward. Learn how a general UL policy differs from the more specialized indexed universal life (IUL) insurance.

Comparing whole life vs. universal life insurance

Reference this table for a quick comparison of the differences between whole life insurance and universal life insurance. You can also learn more about the difference between term and permanent life insurance.

How to get life insurance with Progressive through eFinancial

You can get a life insurance quote online. You'll be asked some questions, and then you'll choose your coverage amount, term length, and other policy details. You can also call 1-866-912-2477 to speak with a licensed representative who can help you find the right policy for you.