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Do you need a term-universal life insurance policy?

There are life insurance policies that combine the advantages of universal life insurance and term life into one policy. They're called term-universal life insurance, and the hybrid policy offers the flexibility of universal life with the affordability of term life.

Term-universal, or sometimes called universal-term, is designed to run to age 100 or 121 with a guaranteed benefit and little or no cash value. Term-universal, in essence, is term life insurance guaranteed to a certain age and there is no cash value build-up at the l

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ater ages. In that way, it's similar to term life, which has no cash value either.

Term-universal is another life insurance option in addition to the multiple permanent life and term life policies. The concept of combining term and universal life has been around for years.

"There have been a lot of products on the market that allow you to blend universal and term to get a lower premium," says Marvin Feldman, president and CEO of the Life and Health Insurance Foundation for Education.

However, if you're interested in term-universal now, you may need to dig. There aren't many insurers that offer the product.

What is term-universal life insurance?

These hybrid policies address needs that fall into a gap between traditional term and universal life.

Traditional term life insurance provides a death benefit if the policyholder dies within a certain period, such as 10, 15, 20 or 30 years. Because the death benefit is limited to that specific timeframe and the policies feature no cash value accounts, term life is more affordable than permanent life insurance.

On the other side, universal life is a type of permanent life insurance

Unlike other permanent life policies, like whole life, which require you to pay fixed premiums, universal life lets you pay any amount you want after an initial payment, as long as you meet a minimum level. You can make higher premium payments when you're flush with cash or lower ones when your budget is tight. A portion of your premium money accumulates in a tax-deferred cash account, which you can borrow against.

Term-universal life insurance policies generally share the following features:

  • Emphasis on affordability versus building cash value

These combination products are designed to be affordable, featuring low, term-like premiums for the initial term you select, such as 10, 20 or 30 years.

  • Flexibility

You can choose to pay premiums in different amounts and at different times, as long as you meet a minimum level to guarantee coverage. You could pay one larger premium or periodic, fixed premiums to maintain coverage for a certain period. You may have to pay a fee to decrease the face amount of a policy.

  • Availability at later ages

The combination policies allow people in their 50s and 60s to get term-like coverage until much older ages than traditional term life.

  • Longer terms

You can purchase combination policies with initial terms of 30 years. In the traditional term-life market, 30-year policies are becoming rarer, says Feldman. Most term life policies offered today are for 10, 15 or 20 years.

  • Tax-free transfers

The term-universal life insurance products also let you do "1035 exchanges," which aren't allowed with traditional term life. A 1035 exchange refers to a section of tax code that lets you transfer money tax-free from one life insurance policy or annuity to another.

These policies are popular among baby boomers, many of whom still have children in college and mortgages to pay off or are starting new businesses in late middle age.

Term-universal isn't for everyone

Although some describe term-universal life as combining the best of both worlds, the policies aren't for everyone.

For instance, standard term life insurance might be the better option if you're young and know you will need life insurance only for a certain number of years. And traditional universal life and other types of permanent insurance would work better if you want to build up a sizable cash value account and you have the resources to pay higher premiums.

To find the right insurance product, Feldman says, consider how much insurance you need, how long you need it and your cash flow.

Shop around for life insurance

Whether you decide on a term-universal, traditional term, or permanent life insurance, make sure you shop around. Once you know what you want, get quotes from multiple life insurance companies. Don't forget to check out more about the insurer, too. One way to do that is to check Insure's Best Life Insurance Companies, which provides annual ratings of life insurance companies.

 

 

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