What Is Universal Life Insurance?
| Universal Life | Term Life | Whole Life |
| Flexible premiums and death benefit | Fixed premiums and death benefit | Fixed premiums and death benefit |
| Potential lifelong coverage | Temporary coverage | Potential lifelong coverage |
| Multiple investment options with differe ... | No cash value or investment component | Fixed growth rate |
| Premiums, death benefit, and cash values ... | Premiums and death benefit guaranteed fo ... | Premiums, death benefit, and cash values ... |
- You can withdraw money or borrow against the policy's cash value.
- Your cash value earns interest.
- You have flexibility with premiums.
- You can adjust the death benefit.
What are the pros and cons of universal life insurance?
“There are really only two reasons to have life insurance: One is to create an estate, and the second is to conserve the estate you’ve created,” says Mr. Diamond, a certified financial planner and author of Retirement for the Record. With permanent life insurance, people pay a premium and the benefit is paid to beneficiaries when they pass away.
Is universal life insurance a good investment?
Universal life insurance can be a good alternative to whole life or term life. It provides lifelong coverage with flexible payments and an investment account.
What is the advantage of universal life insurance?
- the flexibility to vary premiums and change face amounts;
- the transparency and unbundling of the policy elements allowing them to easily track and compare insurance company projections of these elements and actual performance over time;
- the availability of all three death benefit pattern options;
Why should I get Universal Life Insurance?
Key Takeaways
- Life insurance can be used to meet a variety of financial needs, including paying final expenses or outstanding debts.
- Age and health play a large part in determining life insurance premium rates.
- The younger and healthier you are, the less you pay for life insurance.
- Term life insurance is usually cheaper than permanent life insurance.
What are the advantages and disadvantages of universal life insurance?
Overview of Universal LifeProsConsDesigned to offer more flexibility than whole lifeDoesn't have the guaranteed level premium that's available with whole lifeCash value grows at a variable interest rate, which could yield higher returnsVariable rates also mean that the interest on the cash value could be low1 more row•May 2, 2022
Which of the following are advantages of universal life insurance?
The major benefits of universal life are flexibility and cash value growth.Flexible premiums. Universal policies allow you to change the size and frequency of your payments, which can be handy when times are lean. ... Flexible death benefit. ... Potential cash value growth.
Which is better whole life or universal life?
The main difference between whole and universal life insurance is that universal life policies offer greater choice and flexibility when it comes to investing the money in the policy's cash value account, deciding premium payments and choosing death benefit amounts.
What is the average return on universal life insurance?
You could earn, on average, a 10–12% return without those heavy fees. Plus, when you break down how much of your cash value premium goes toward making you cash, you'll probably die a little inside, especially if you compare it to term life insurance (which we'll look at later).
What happens when a universal life policy matures?
Universal life insurance policies have a maturity date which occurs when you turn a certain age (often between 85 to 121). When a policy reaches its maturity date, you generally receive payment and coverage ends.
Is universal life insurance good for seniors?
Guaranteed universal life insurance can be a good choice for seniors who can pass a medical exam. Guaranteed universal life insurance is a popular option for older people whose existing term life insurance policies have expired or are about to expire.
Can you cash out a universal life insurance policy?
While many factors determine if you can withdraw money from a universal life policy, the answer is frequently “yes.” But withdraws from a policy's cash value reduce its death benefit, and have varying tax implications.
What happens to cash value in universal life policy at death?
When a person dies, their life insurance company will absorb the cash value and your beneficiaries will be paid the policy's death benefit. The cash value of a life insurance policy can only be used by the policyholder while they are alive and is not paid out to beneficiaries.
Do universal life insurance premiums increase with age?
Life insurance premiums increase as you age. If you're using the cash value of your universal life policy to cover premium payments, you run the risk of not having enough in the policy's cash value to cover the higher premiums. Missed premium payments could lead to a lapse in coverage.
Is universal life insurance risky?
Universal life insurance — sometimes called "adjustable life insurance" — is one of the most flexible types of permanent life insurance. However, it's also riskier and more complex than whole life. This type of coverage provides a death benefit plus a cash value component or savings.
Can you outlive universal life insurance?
Typically, the two umbrellas for life insurance are term and permanent. Universal life insurance is a permanent life insurance policy, and is similar to whole life, in that it will last forever as long as your clients maintain sufficient cash value to cover the monthly costs.
Is universal life insurance a good investment strategy?
Is Universal Life Insurance a Good Investment? Both Downing and Fisher indicate that universal life insurance can be a good investment depending on your financial goals. The cash value component is a long-term investment, meaning its value takes years to accumulate.
What is universal life insurance?
Universal life insurance offers lifelong coverage, provides flexibility when it comes to paying premiums and choices for how the policy’s cash value is invested. A standard universal life insurance policy’s cash value grows according to the performance of the insurer’s portfolio and can be used to pay premiums.
How long does universal life insurance last?
This is in contrast to term life insurance which only provides coverage for a set period of time, such as 10 or 20 years.
What is collateral in insurance?
Loan Collateral - You can borrow money from the insurer and use the cash value as collateral, so that’s the maximum amount you can borrow. These policy loans are subject to interest rates which are set by the insurer. Premium Payments - You can use the cash value to pay a portion or the entirety of a premium payment.
What happens to your insurance premium as you get older?
Usually, there’s a minimum and maximum cost of insurance so, as you get older, your minimum premium will increase significantly. If this happens when your cash value is depleted and you’re living on a fixed income, you may be stuck and your policy will lapse, meaning you lose your coverage.
Can you invest in indexed universal life insurance?
With indexed universal life insurance, you can often invest the cash value in a fixed interest rate account and an account tied to the performance of an index. You tell the insurer the percentage of the cash value that should go into each investment, and the insurer will keep track of the performance.
Can a policy lapse if the cash value reaches zero?
Your policy can also lapse if the cash value reaches zero. Running out of cash value can be particularly bad if your cost of insurance is increased. The cost of insurance can be level for the life of the policy, but this isn’t typical. Usually, there’s a minimum and maximum cost of insurance so, as you get older, ...
Can you keep permanent insurance if your cash value runs out?
This can be a good strategy if you want to maintain permanent coverage even when you have a smaller income during retirement. The downside is that if your cash value runs out, you can get stuck paying the full cost of insurance and there’s no surrender value to the policy.
Should you buy universal life insurance?
Justin Pritchard, CFP, is a fee-only advisor and an expert on personal finance. He covers banking, loans, investing, mortgages, and more for The Balance. He has an MBA from the University of Colorado, and has worked for credit unions and large financial firms, in addition to writing about personal finance for more than two decades.
What Is Universal Life Insurance?
Universal life is a form of cash value insurance that lets you adjust premium payments and the death benefit, and some policies have investment options. Like all life insurance policies, this form of insurance pays a death benefit to beneficiaries when an insured person dies. But it’s different from whole life and term insurance.
Pros Explained
Universal life insurance typically does not have a rigid premium schedule—which could be helpful if you have an irregular income. For example, you can skip payments, decrease the amount of your payment, or pay in “chunks'' when you have money available.
Cons Explained
When evaluating a policy, you typically assume that you’ll earn a certain amount on your cash value over time. If earnings fall short of those assumptions:
Alternatives to Universal Life Insurance
Choosing the right type of life insurance can save you money and ensure adequate protection for your loved ones. It’s best to explore the pros and cons of each option with an insurance agent and a financial planner.
Is Universal Life Insurance Right for You?
If you need life insurance coverage and you prefer to have a policy that’s customizable and flexible, universal life insurance could make sense. These policies allow for irregular premium payments, and some policies let you invest the cash value in the stock market in hopes of long-term growth.
What is indexed universal life insurance?
Indexed universal life (IUL) insurance is a form of universal life. The cash value is linked to a market index, but IUL policies typically do not lose value in market crashes. If the index gains value, the cash value can potentially grow with the markets, but policy features limit your gains and upside potential.
What makes universal life insurance different from other types of life insurance?
What makes universal life insurance different from other types of permanent life insurance is that it allows you to use the cash value to pay your premiums. But similar to other permanent policies, it lasts your entire life and pays out a tax-free death benefit to your beneficiaries when you die. Part of the premiums you pay goes towards ...
What are the disadvantages of universal life insurance?
Most people will find that the disadvantages of universal life insurance outweigh the advantages. It is a lot more expensive than term life insurance. Cash value accrual is capped at a relatively low interest rate. The actual cost of insurance increases with time.
What happens if you decrease your life insurance premiums?
If you decrease how much you spend on premiums, the difference is withdrawn from your policy’s accrued cash value. A universal life insurance policy can be a good fit for someone who is looking for some flexibility in their life insurance — and can afford to have that flexibility. It’s geared towards high earners who are trying to build ...
Why are universal life insurance premiums so high?
Because universal life insurance policies are permanent and accrue cash value, the premiums are a lot higher. However, it can be difficult to create a long-term budget for this type of policy because of its flexible premiums. And before your policy builds up cash value, you’ll be paying a lot of money to have that flexibility.
What happens if you deplete your universal life insurance?
If you completely deplete your policy’s cash value and still don’t make a premium payment, your policy will lapse. Because universal life insurance provides permanent coverage, some people choose it for their estate planning needs. The death benefit payout can be used to cover estate taxes and legacy costs.
What is permanent life insurance?
While term insurance is straightforward, permanent life insurance comes in a variety of forms, each with a different way of accumulating money over time. One popular type of permanent insurance is universal life insurance, a flexible life insurance policy that comes with a cash value. What makes the policy flexible is its payment structure — you ...
Is universal life insurance good for saving money?
This means that universal life insurance isn’t always the best option to save money for the future. While you won’t lose money due to the floor, the capped returns realize a much smaller gain than you could get by investing the same amount in an IRA or 401 (k).
What is universal life insurance?
Universal life insurance is a type of permanent life insurance. It can cover you for the duration of your life, as long as the premiums are paid. Some forms of universal life insurance also offer a cash value component. The cash value can build up investment gains (and sometimes get hit with losses, depending on the policy type).
What is guaranteed universal life?
A guaranteed universal life (GUL) insurance policy offers a death benefit and premium payments that will not change over time. You select an age at which the policy ends (such as age 90, 95, 100, 105, 110, or 121). Choosing a higher age will increase the premium.
What are the different types of universal life insurance?
Here’s how universal life policy types stack up in terms of premiums being paid into them, according to LIMRA, an industry research group. This based on total individual life insurance premiums in the first quarter of 2020: 1 Guaranteed (fixed) life: 10% 2 Indexed universal life: 24% 3 Variable universal life: 7%
What happens when you pay premiums?
When you pay premiums, part of the money goes to (potentially high) policy fees and charges, and the remaining goes into cash value. It’s important to understand the boundaries of your potential investment gains. Indexed universal life insurance policies have participation rates and caps.
How long is term life insurance?
Term life insurance is generally available for 5, 10, 15, 20, 25 or 30 years. It doesn’t have a cash value component and you could outlive the policy. But it’s the cheapest way to buy life insurance. For example, you could buy a 20-year policy to cover young children’s growing years and college time.
What is IUL insurance?
Indexed universal life insurance (IUL) offers lifelong coverage and may have some flexibility with the death benefit and premiums. You may be able to adjust your death benefit and payments within certain limits if your needs or budget change.
What is the medical exam for universal life insurance?
Many sellers of universal life insurance use “full underwriting,” meaning they take time to fully examine your application, verify information, and require that you do a life insurance medical exam. The medical exam usually includes height, weight, blood pressure, and blood and urine samples.
What are the different types of universal life insurance?
Starting with the least risky, these are: fixed universal life, fixed indexed universal life, and variable universal life.
What are the disadvantages of a fixed universal life insurance policy?
Cons: Having an FIUL insurance policy can present the following disadvantages. Difficulty understanding how the policy works because it’s an advanced type of life insurance. Not having any interest credited to cash value if the index goes down. Dealing with more risk than you would with a fixed universal life policy.
Why is FIUL insurance less risky than variable universal life?
Less risky performance than variable universal life because the cash value is not directly invested in the stock market. Cons: Having an FIUL insurance policy can present the following disadvantages.
What is the advantage of level death benefit?
Option A: Level Death Benefit. Pros: The main advantage is that you pay less in premiums for the same death benefit than you would under option B. This is because as the policy’s cash value grows, you pay for less pure insurance, which reduces your risk to the insurance company.
What does it mean to get a larger death benefit?
Pros: A larger death benefit of course means your beneficiary will get a higher payout upon your death. With more money, your family could survive financially for a longer time or pay off larger debts.
How to contact Universal Life Insurance?
HealthMarkets is here to help guide you in making the right choice. You can reach an agent by phone at (800) 917-4169 to get answers to any questions you may have about universal life insurance pros and cons.
Is fixed universal life the least risky?
Fixed Universal Life Pros and Cons. Pros: This is the least risky of the 3 because the cash value accumulates interest based on the insurance company’s overall investment accounts, which are usually tied to bonds that are relatively safe, according to an article from LifeHealthPro.
What is variable universal life insurance?
Variable universal life insurance policies allow the policy owner to participate in the market through subaccounts. Variable simply means the performance of the policy cash value is tied to market returns.
What is the difference between indexed and universal life insurance?
Indexed universal life insurance offers many of the same benefits as current assumption universal life. The main difference is how the policy cash value is credited. The cash value of an indexed universal life insurance policy is credited based on the performance of the chosen index.
What is current assumption universal life insurance?
Current assumption universal life insurance is the type of policy we used in our previous examples. In addition to the uniqueness of the products flexibility, is how the cash value is credited.
What is the minimum crediting rate for universal life insurance?
The guaranteed rate is usually somewhere between 2% and 4%. Most newer policies tend to be closer to 2%. This rate is the minimum crediting rate an insurance company is legally required to credit a universal life insurance policy regardless of economic conditions.
What happens when you pay more than the minimum cost of insurance?
The premium paid in excess of the cost of insurance becomes a part of the policy cash value. At any time, the policy owner can access the cash surrender value of the policy. This can be in the form of a withdrawal or policy loan.
How does UL insurance work?
The cost of insurance for a UL policy is based on the insureds age, health class, and death benefit. The cost of insurance increases incrementally each year based on your age. For instance, assuming the same health class and death benefit, the cost of insurance for a 85-year old is going to be much greater than it is on a 50-year old.
Is variable life insurance the riskiest?
By placing all the cash value in the fixed account, the policy will perform like a current assumption UL policy. Variable life insurance is the riskiest of all permanent life insurance policies.
What is universal life insurance?
A universal life insurance definition is a type of permanent coverage that offers flexibility. These policies allow you to change the terms of your policy, such as shifting how you pay premiums or increasing or reducing your death benefit.
How does universal life insurance work?
Each time that you pay the premium on your universal life insurance policy, part of the money goes toward the death benefit and another part goes into the policy's cash value.
What is included in a universal life insurance policy?
Universal life insurance guarantees a death benefit when you die as long as you stay current on premiums.
Who should buy universal life insurance?
Universal life insurance makes sense for policyholders who want to provide financial protection for their loved ones but who also want more flexibility in the terms of their policy.
What are the different types of universal life insurance?
There are several different types of universal life insurance policies. They include:
What makes universal life insurance different from other life insurance policies?
One quality truly separates universal life insurance from other life insurance policies is flexibility.
Pros and cons of universal life insurance
Universal life insurance can be a great option for those who want more flexibility in their policy terms. The ability to change your death benefit and alter how you pay premiums can be a huge benefit to customers if their financial circumstances change.
