Finder makes money from featured partners, but editorial opinions are our own. Advertiser Disclosure

Universal life vs. term life insurance

The coverage you need depends on your budget and your family's financial needs.

Term life insurance coverage ends after a specified period of time, while universal life covers you as long as you pay your premiums. Compare these two life insurance options, thinking about your family’s financial needs as well as your budget and how long you want coverage.

What’s the difference between term and universal life insurance?

Both policies offer a death benefit once you die, but the main differences come down to how long the coverage lasts, and its ability to build cash value.

These are the key features for term vs universal life insurance.

Term life insuranceUniversal life insurance
Usually easy to buy
More affordable
Choose how long your coverage lasts
Lifelong protection
Fixed premiums
Flexible premiums
Builds cash value
Investment component
No-medical-exam policies available

What is term life insurance?

Term life insurance is the simplest and cheapest most affordable type of life insurance. You pay a fixed premium for a set number of years. If you die during the policy, your beneficiary will receive a death benefit.

What should I know about term life insurance?

  • It provides coverage for a set time.
    Get coverage for 10, 15, 20 or 30 years — and once the term expires you can either renew your policy, convert to a permanent policy or let it lapse completely.
  • It’s more affordable than universal life.
    The insurer has a lower risk of paying out the death benefit before the term ends. Permanent policies, on the other hand, provide lifelong protection, so the insurer knows it’ll have to pay eventually
  • You have the option to renew your coverage when your term ends.
    Once your term ends, you can either renew your policy or convert to a permanent policy if you’re younger than 70.

What is universal life insurance?

Universal life is a permanent policy, offering lifelong coverage as long as you keep paying your premiums. The major difference between universal life and other permanent policies is that the payments are flexible.

Like term life, universal life offers a tax-free death benefit. However, it’s more of an investment. A portion of each premium is invested to give your policy a cash value. Once you build up sufficient savings, you can tap into your policy during your lifetime.

What should I know about universal life?

  • You can borrow against your policy.
    After 10 to 15 years, you can borrow from your cash value to pay for things like a down payment on a house.
  • You can adjust your premiums.
    As your life changes, you can change your premiums. And once you’ve accumulated cash value, you can use it to pay your premium. However, this adjusts the amount of death benefits your beneficiaries will receive.
  • The premiums increase as you age.
    Unlike term life insurance, universal life premiums can rise over time.
  • You can earn interest on the cash value.
    The interest rate is set by the insurer and can change according to the market. It’s also hinged on your insurer’s investment performance, but it can’t dip below the policy’s guaranteed rate.

How much does term vs universal life insurance cost?

Since term life insurance is temporary and has no monetary value while the policyholder is alive, it’s the much cheaper option of the two. Universal life insurance is more expensive because it offers lifelong protection and has a built-in cash value component, making it an investment product.

Average costs of a 20-year, $500,000 term life policy


Average costs of a $500,000 universal life policy

To compare, here’s how much you can expect to pay in monthly premiums for a universal life insurance policy.


*Sample rates sourced from three major life insurance companies in the US, and are valid as of January 2021.

Should I buy term life or universal life insurance?

Deciding between universal or term life insurance depends on your financial situation and lifestyle.

Consider buying term life insurance if …

  • You’re on a budget.
    Term life is the cheapest type of life insurance. And the younger and healthier you are, the lower your premiums will be.
  • You have short-term needs.
    If you only want coverage for the years that you’re paying the bills, this coverage can offer your family financial security. Get coverage to pay the mortgage, car payment and get your kids off to college.
  • You predict your circumstances will change.
    With term life insurance, you can reevaluate your policy as you near its expiration date. That means that if you’ve experienced major life changes, you can adjust your next policy to reflect that.
  • You’re interested in a simple life insurance policy.
    Term life is pretty straightforward, simply pay your premiums and get a payout if you die. No need to worry about investments or fluctuating premiums.

Consider buying universal life insurance if …

  • You need to protect your assets.
    If you want to protect a large estate or provide for your children or grandchildren, universal life insurance can offer a solid inheritance.
  • You’re looking for flexibility with payments.
    Maybe your income fluctuates or you have money stashed away in other investments. If you can’t commit to paying a fixed premium each month, this policy’s flexibility feature is very attractive.
  • You want to access the money in your policy.
    If you’re planning to buy a home, get married or apply for a loan, a universal life policy might be a good fit. Once you’ve built up substantial cash value, you’ll be able to borrow against your policy.
  • You’re treating life insurance as an investment.
    If you want to invest your life insurance to build on your cash value, universal life can give you a return on this investment. However, there is risk and premiums can be high.

Find a life insurance policy today

Name Product Issue age Minimum Coverage Maximum Coverage Term Lengths Medical Exam Required
Policygenius - Life Insurance
18 - 85 years old
10, 15, 20, 25, 30 years
Depends on provider and policy
Compare 12+ top insurers side-by-side to get the best possible deal, and shop return of premium policies online.
Everyday Life
18 - 70
10, 15, 20, 25, 30, 35 and 40 years.
Ladder multiple life insurance policies to save on the coverage you need for all your debts.
18 - 60 years old
10, 15, 20, 25, 30 years
Apply for term life insurance in minutes and get an instant decision all online. Plus, you’ll get to skip the medical exam.
18 - 65 years old
2 - 35 years
Get a quote for term life coverage that you can adjust over time to match your financial needs. Or, track your debts with Wysh Tracker to automatically lower your coverage as you pay down debt.
20 - 60 years old
10, 15, 20, 25 or 30 years
No, for coverage up to $3M
Apply for term life insurance online without the medical exam. Get an instant decision and adjust your coverage at no charge.

Compare up to 4 providers

Can I buy both term life and universal life insurance?

Yes. You can ladder your insurance, or hold two or more life insurance policies at the same time. When you apply for additional coverage, be prepared to explain why you want more coverage and be ready to show proof that you can pay for both.

These are some of the reasons why you might want to purchase both term and universal life insurance:

  • You can’t afford the coverage you want.
    Many families start with term life insurance because it’s the cheapest option, and then buy a permanent policy later when they’re earning more money.
  • You need more coverage.
    Maybe you bought a home, got married or had a child. You may consider adding coverage to cover those new financial obligations.
  • You’re applying for a loan.
    Life insurance can serve as collateral and assure the lender that you have every intention of paying the money back.

Compare other types of insurance products side by side

Bottom line

When you’re deciding between term vs universal life insurance, think of your financial obligations and goals. If you have short-term needs or a tight budget, a term life policy can offer protection and security for a specified period of time. If you’re interested in treating life insurance as more of an investment, you might want to look into a cash value policy like universal life.

Once you’ve settled on a policy, compare insurers to make sure you’re getting the most value for your money.

Frequently asked questions

When is life insurance paid out?

Typically, life insurance is paid out within 30 to 60 days of the claim, with most states giving the insurer 30 days to investigate the claim. Your policy can pay out a lump sum or an annuity in installments if you die or are diagnosed with a terminal illness and likely to die within 12 months

This process may be delayed if the policyholder died within two years of taking out life insurance or if their death is declared a homicide.

What can a life insurance payout be used for?

It can be used for anything, really. Many people use it to pay for the policyholder’s burial expenses as well as to pay off debt, repay a mortgage or to cover college costs. As a beneficiary, you can also use the funds for everyday living expenses.

How much life insurance coverage should I get?

It depends on your financial goals and obligations. When deciding how much coverage to get, take these things into account:

  • Your outstanding debt. This includes things like your mortgage, credit card debt and any student loans you may have.
  • Your other financial assets. Consider your savings accounts, homes, investments in property and stocks and any 401(k)s you have.
  • Your family’s living expenses. This includes rent, education, childcare, car costs and other everyday expenses.

    How do life insurance companies set my premium?

    Life insurance is tailored to the individual. The rate you’re offered reflects your age, gender, health, family history, driving record, occupation, lifestyle and whether you drink or smoke.

    More guides on Finder

    Ask an Expert

    You are about to post a question on

    • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
    • is a financial comparison and information service, not a bank or product provider
    • We cannot provide you with personal advice or recommendations
    • Your answer might already be waiting – check previous questions below to see if yours has already been asked provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

    By submitting your comment or question, you agree to our Privacy and Cookies Policy and Terms of Use.

    Questions and responses on are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.
    Go to site