Comparison Last reviewed: 2026-10-03 Part of Comparisons

IUL vs Term Life Insurance

Written and reviewed by Hans Goldstein, licensed insurance producer, NPN 20602398 · CA Insurance License #4273294
Last reviewed October 3, 2026 · Published October 3, 2026

Verdict: for most people with a tight budget and a temporary need, term first. An IUL makes sense when you need lifelong coverage, can fund the policy well for 15+ years, and are young enough for cash value to build. The research adds a twist: most term policies never pay a claim, mainly because they lapse or expire, and most permanent policies also lapse early. The right choice is the one you will keep.

Side by side

Term vs IUL at a glance

	Term	IUL (funded for cash value)
Coverage length	10 to 30 years, then increasing premiums	For life, if funded
Cost for the same death benefit	Much lower	Much higher, because it builds cash value
Cash value	None	Builds over 10 to 20 years; not guaranteed beyond the floor
Flexibility	Convert to permanent before a deadline	Adjust premium, loans, withdrawals
What can go wrong	Coverage ends when you still need it	Underfunding leads to a late-life lapse

What the lapse data says

At the end of a 10-year level period, 47.5% of policies by count lapsed in 2015 to 2023 (SOA/LIMRA 2026), and lapse rises with the size of the premium jump: about 17% at a 1 to 2 times jump, 65% at 4 to 5 times, 93% at 18 to 20 times (SOA 2014) (SOA/LIMRA term conversion study; SOA post-level term study).
Only about 4.9% (by amount) of 10-year term converts to permanent coverage in the final level year (SOA/LIMRA 2026).
Permanent coverage is not immune: research citing LIMRA data shows 29% of permanent policyholders lapse within 3 years and 57% within 10 (Gottlieb and Smetters, AER 2021).
For policies sold at 65, 74% of term and 76% of universal life never pay a death claim (same study, citing Milliman).

Read together: term usually ends unused because it was bought for a period that passed, which is fine. Permanent coverage fails when it is bought too big to keep funding. Either way, the mistake is buying something you will not keep.

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The mixed design

Many families do both: a large term policy for the years the mortgage and kids depend on income, plus a smaller IUL sized to a premium they will keep paying for 20 years. The term does the heavy lifting now; the IUL becomes the coverage that lasts and the cash value that builds. Convertible term adds a third lever: convert part of it later at your original health class.

Term makes sense when...

You are a disciplined saver who really does invest the difference, every month, for decades.
The premium is small enough that you will not miss it (around $100 a month), so it will not lapse.
The need is temporary: a mortgage payoff, kids until they are independent, income replacement through your working years, a business loan or a key person for a set term.
You need a big death benefit on a tight budget right now, as with a young family.
You want to lock in your health now with convertible term and convert part of it to permanent later (how term conversion works).

Permanent makes sense when...

Forced savings helps you: a premium you pay like a bill builds cash value you would not have saved on your own.
You want coverage that lasts your whole life, not just 20 or 30 years.
There is an estate or ILIT purpose: liquidity for estate tax, equalizing heirs, or a trust (ILIT guide).
Cash value is a goal and you can fund it properly for 15+ years (max-funded IUL).
You are healthy and under about 55, so the cost of insurance has decades to stay low while cash value builds.

Hans's decision order

Size the need. If the budget cannot cover it with permanent coverage, buy enough term.
Make the term convertible and write down the deadline.
Add an IUL only at a premium you are confident you will pay for 15 to 20 years, ideally while you are under about 55.
Fund the IUL near the tax-law limit for cash value (max-funded IUL), not as a large, thin policy.

Hans's opinion, not a rule: for people who can afford it, owning some permanent coverage is usually the most satisfying long-term answer, because the need for life insurance rarely ends exactly when the term does.

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Hans Goldstein · 213-414-2808 · NPN 20602398, independent licensed insurance producer

Frequently asked questions

Is IUL better than term?

Not for everyone. Term is better for a large temporary need on a tight budget. IUL is better for lifelong coverage with cash value when you can fund it well for 15+ years.

Do most term policies pay out?

No. Most term policies end or lapse before a claim. For policies sold at 65, research found 74% of term never paid a death claim.

Do people keep IUL policies?

Many do not. Research citing LIMRA data found 57% of permanent policyholders lapse within 10 years, often because the policy was too big to keep funding.

Can I have both term and IUL?

Yes. A large term policy plus a smaller IUL sized to a premium you will keep paying is a common design.

Can I convert term to IUL later?

Often, if your term is convertible and the carrier allows conversion into an IUL before the deadline. Check your policy's conversion menu.

Sources

Hans Goldstein, CA Insurance License #4273294 · NPN 20602398 · Goldstein & Co. LLC dba Goldstein Insurance Services, CA License #6016830

Contact: hans@hansgoldstein.com · 213-414-2808

General education, not tax or legal advice. Tax treatment depends on your facts and on current law, which can change. Talk to your CPA or estate attorney. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Guarantees apply only to the contractual terms of the policy. Caps, participation rates, loan rates, charges and dividends are not guaranteed and can change. Hans is paid a commission by the insurer if you buy a policy through him. For life insurance, ask and he will tell you what he earns on your specific policy. Product and company names are trademarks of their owners. Goldstein Insurance Services is an independent agency, not affiliated with or endorsed by any insurer named here. Life insurance requires underwriting; not everyone qualifies. This page describes products in general terms; read the policy and the insurer's disclosures before you buy.