Universal life vs. term life insurance

Discover the difference between universal and term life insurance. Compare policies and choose the option that best serves your needs.

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Universal life is a type of long-term life insurance that can provide lifetime protection and build cash value with tax advantages. With universal life insurance, you have the flexibility to adjust the amount and frequency of your premium payments (within limits), and even increase or decrease your policy’s coverage to keep pace with your financial goals.

What are the types of universal life insurance?

There are three types of universal life insurance policies:

  • Universal life insurance accumulates cash value—on a tax-deferred basis—with an interest rate that may change over time. Increasing the amount or frequency of your premium payments enhances your opportunity to build cash value.
  • Guaranteed universal life insurance has an interest rate that is baked into your premiums when you sign up for the policy, and it will stay the same no matter how the market performs. As long as you pay your premiums, you’ll have coverage, and the death benefit won’t decrease.
  • Variable universal life insurance provides long-term life insurance protection to your loved ones, and you can invest in the growth potential of the markets by putting your money to work right now. Over the long term, that investment can help grow assets for future goals, such as college funding, retirement, and more; however, accessing the cash value of a variable universal life insurance policy will reduce the available cash surrender value and the death benefit.

Consider universal life insurance if you’re looking for:

  • The most long-term protection for your dollar.
  • Protection for a longer period than is available with typical term insurance.
  • The ability to customize your protection up front, within limits.

What are the different types of term life insurance?

Many families count on term life insurance for temporary protection in which  premiums are generally lower in the early years than they would be with longer-term coverage. It’s typically used to cover a period in which a financial safety net is particularly needed. 

Rather than take a one-size-fits-all approach, we can create a combination of term life policies to build a portfolio that meets your specific needs. 

While income replacement is a long-term priority, it’s likely that your family has some shorter-term obligations as well. As a result, there may be periods when your family needs more protection. To find the right product, start by thinking about your needs and how long you’ll want protection to be in place.

  • Yearly Convertible Term may be the right choice if you want protection for a short, defined period or if you may want to convert to a permanent policy soon. Premiums generally start out lower than those for a level premium product, but they increase each year.
  • Level Premium Convertible Term is good if you want level premiums for 10–20 years. After the level premium period that you select ends, premiums will increase annually.
  • Million Plus Level Term works if you need $1 million or more of protection. It’s our most competitively priced 10-year level premium product, and it may work best for someone who plans to convert within the first five policy years or does not plan to convert at all.

Universal life vs. term life Insurance

Universal Life Insurance

  • Long-term protection for those who aren't focused on accumulating cash value.
  • Long-term protection.
  • The beneficiary receives a death benefit, which is typically income tax free.

Variable Universal Life Insurance

  • Long-term protection with the opportunity for cash value to grow based on market performance. Cash value fluctuates; investment losses are possible.
  • Long-term protection.
  • The beneficiary receives a death benefit, which is typically income tax free.

Term Life Insurance

  • Temporary coverage, often with options that allow you to prepare for the future.
  • A set coverage period, usually 10 to 20 years.
  • The beneficiary receives a guaranteed1 death benefit, which is typically income tax free.

Advantages of universal life insurance:

  • Long-term coverage for a lower premium than you would generally pay with permanent life insurance policies.
  • Cash value accrual is tax-deferred.
  • Premium payment amounts can be adjusted down (within limits and if there is enough cash value to keep the policy from lapsing).
  • Flexible death benefits.

Who should buy universal life insurance? 

Universal life insurance products are usually for people who are looking for the most long-term coverage they can get for the price of the premium. They should be willing to monitor their policy periodically with their agent/financial professional to ensure that it stays on track. Many older people looking to convert their term insurance policy to longer-term coverage choose universal life because they may be looking for longer-term death benefit protection. It is for people who ...

  1. Want long-term coverage.
  2. Don’t mind regularly monitoring their policy with their agent/financial professional.
  3. Would like the ability to customize their coverage both now and in the future.
  4. Want coverage that lasts longer than most term insurance policies do.

Advantages of term life insurance.

Rather than taking a one-size-fits-all approach, we can create a combination of term life policies to build a portfolio that meets your specific needs. Since term life insurance comes in a variety of durations— anywhere from one to 20 years—it’s easy to match your coverage to your actual needs. Plus, you can convert some of your term coverage to permanent life protection if your plans change.

The benefits of a custom policy:

  • Customize your coverage
    Build your portfolio to protect what’s most important to you—and for the length of time that protection is needed.
  • Lock in an upgrade
    Lock in the ability to convert to permanent protection if your needs change over time, without additional medical exams.*
  • Term conversion riders
    Acquire the option to convert a term life policy into a permanent one, typically without the need to complete a medical exam.

What makes a universal life insurance policy different from other long-term insurance policies?

Here are some factors to consider when comparing life insurance policies:

  • Guarantee vs. flexible1
    For many people, a guaranteed death benefit is the most important aspect of their policy. It means peace of mind for them—and their loved ones. For others, having the flexibility to adjust certain components of their policy, including premiums (within limits), is more important, even if it means the death benefit could fluctuate.
  • Your level of oversight
    With some kinds of life insurance, you can purchase a policy, put it away, and simply pay your premiums as they come due. With some universal life policies, though, you can make changes to your policy, including adjusting your premiums and coverage.2 The flexibility of those policies can be very helpful if your circumstances change. It requires you to regularly review your policy, though, to ensure that it is properly funded and remains in force. Ask your agent about which type of universal life policy best meets your needs and objectives.
  • Our level of oversight
    There are factors impacting your policy that you can control and factors that you cannot control. Our Auto-Adjusted Billing service** actively monitors your policy and informs you annually if changes are needed. This optional service is available at no additional cost to you and is a great way for you to make sure the objectives of your policy remain on track.
A couple at a table signing paperwork with an agent.

Consider a universal life insurance policy from New York Life for: 

  • A long-term death benefit
  • At the time of purchase, the ability to customize your premium payments (within limits)
  • The potential to accumulate cash value at a rate that may change over time
  • An Auto-Adjusted Billing service,** which is optional at no additional cost, that actively monitors your policy and makes annual adjustments to billed premiums to help maintain policy objectives
Related Resources

Want to learn more about life insurance?

A New York Life financial professional can help determine what’s right for you.

1Any guarantees of a universal life policy are based on the claims-paying ability of the issuer. 

2The return and unit value of a variable universal life poilcy will fluctuate . Variable universal life insurane is offered only by prospectus; the prospectus, containing more complete information about the policy, should be read carefully before investing.

*Conversion guidelines and limitations, such as timing, apply. 

**This service is not available on all universal life insurance products.  

In Oregon, the New York Life Universal Life policy form number is ICC19- 319-51P, and the New York Life Variable Universal Life Accumulator II form number is ICC17-317-30.  

In Oregon, the policy form number for Custom Universal Life Guarantee is ICC18-318-54P. Policy form numbers for riders are as follows: ICC18-318-292R (Money Back Option Rider); ICC18-318-291R (Chronic Care Rider). State variations may apply.

Products and features available in approved jurisdictions. In most jurisdictions, the form number for New York Life Market Wealth Plus is ICC22-322-32P, and state variations may apply.