There are many types of life insurance policies in Canada but they all generally follow a similar structural format. The two fundamental types are term and permanent life insurance. The main difference between them is the duration of coverage. These things are related to your future, so naturally, you need to do ample research before selecting one. This article will talk about Term vs. Universal life insurance in Canada.
In simple words, Universal Life Insurance is a flexible permanent life insurance. It covers the policyholder for their lifetime. The Term insurance only covers the policyholder for a fixed duration. They do not get the death benefits if they fail to die before that duration ends.
There are many intricate details to these policies. No life insurance policy suits everyone. So it is necessary to check the pros and cons of each type. Many people also wonder whether they can get their investment back at the end of the duration of Term insurance.
The Fundamental Difference Between Term & Universal Life Insurance
1. Term Life Insurance
Term life is the most common and affordable life insurance policy. It offers protection for a fixed time.
You can only claim the insurance if you face the conditions listed within that set time frame. The conditions could include protection against dismemberment, workplace accident, and accidental death.
However, a term policy will only give you fixed insurance proceeds in such cases. The amount does not grow with the duration of the term.
Term insurance will expire after the contract ends. It’s usually very affordable since you don’t need to pay too much premium. You could also extend the insurance after a term ends. Most insurance companies offer that service for a higher rate. There’s also a more sensible option to turn it into a permanent policy.
You can usually get a cheaper rate if you are younger. The rate increases in proportion to your age since your risk of dying also increases.
2. Universal Life Insurance
Universal life insurance is a permanent insurance policy with an investment feature. You could think of it as a term policy that lacks an expiry date and has growth potential. It’s an all-around upgrade over the term policy. One that also has some tax-deferral features.
The total insurance proceeds you’ll get will keep increasing with time. But the initial premium rate can differ based on your age. That’s why it is generally better to get insurance early in life. That keeps the premium rate at a manageable level.
Structure Of Term Insurance
Structure Of Universal Life Insurance
Advantages & Disadvantages Of Term Insurance
Insurance policies are situational. You can get more value from them if you pick the right ones at the correct times of your life.
Here are some of the benefits of term policy:
1. Affordable Insurance Cost
Term insurance is far more affordable than universal insurance because it only covers you for a set period. The cost is just a fraction of the permanent insurance, but it still offers a good safety net.
From a cynical perspective, you will lose money if you don’t die within that term. And to get an extension on that term costs even more. But such policies generally provide a lot of valuable riders to the policyholder.
2. Tax Benefits
3. Higher Flexibility
Advantages & Disadvantages Of Universal Insurance
Universal life insurance has many benefits, making it a better choice than term insurance policies in most cases.
Here are some of the pros of this policy:
1. Versatile Payment Options
2. Flexible Death Benefit
Permanent life insurance policies cost more than term policies. That is due to the higher risk of death benefits. But the permanent policies don’t have a homogenous price range either. There is another permanent policy called whole life insurance.
So what’s cheaper – Term or Whole life? And how do they compare in terms of benefits?
Universal life insurance is a low-risk investment. It has a minimal policy cost compared to other permanent policies such as the whole life policy. Since it costs less, it also gives fewer guarantees. On average, the death benefit of a universal life insurance policy is less than.
4. Guaranteed cash value growth
How To Tell Which One Suits You Better
So, what is better? Term or universal life insurance?
Which one should you choose? That honestly depends on your situation. Both of these are acceptable options. But they perform better under certain conditions.
Term coverage is a good option for professional fields. It is one of the most common ones many companies offer to their employees. The term limit suits the policyholder just fine, and the company can revoke it without paying too much if the employee leaves them.
Another reason for its popularity in the professional field is its coverage. Despite being a relatively cheap option, the term policy gives excellent disaster coverage.
At the same time, the flexibility of this policy is good for new families. New families do not have too much financial capital to invest in these things. So a cheap short-term plan suits them fine. They can quickly get through the initial stage and pay for a more premium option when they are more financially stable.
Universal insurance is a better option for people who have more capital to pay the premiums. It has a guaranteed interest increase, which is a reasonably safe investment.
At the same time, it also has flexible payment features. So you can easily change your plans according to your situation. But generally speaking, universal insurance is the best option for people with fluctuating income ranges.