When considering your end-of-life expenses, you want to be as prepared as possible ahead of time, with life insurance as an important part of your plan. Universal life insurance is a popular choice for many folks who want lifelong coverage, since you can choose how much money you put into the policy. Universal life insurance offers significantly more flexibility than other types do.
An independent insurance agent can help you get a universal life insurance policy that's right for you. But first, here's a deep dive into universal life insurance and what it covers.
What Is Universal Life Insurance?
Universal life insurance is a flexible permanent life insurance policy that offers low-cost protection like term life insurance, as well as a savings element like whole life insurance. The savings element is invested to build up a cash value. The death benefit, savings element, and premiums can be changed as the policyholder’s needs and life circumstances change. Policyholders can use the interest from the savings component to pay the policy premiums.
How Does Universal Life Insurance Work?
According to insurance expert Jeffrey Green, universal life insurance is a flexible-premium permanent life policy that allows consumers to customize premiums, death benefits, and cash value accumulation to their needs. You can also adjust your death benefit within a specified amount. Lowering your death benefit can help lower your premium payments.
With universal life insurance, you can also choose to borrow some of your policy's cash value to use in the present. However, if you borrow some of your cash value and never repay it back into your policy, your death benefit will be reduced by that same amount. An independent insurance agent can further explain how universal life insurance works.
Comparing Universal Life Insurance Options
There are several types of universal life insurance policies available, each with different additions to the adjustable premiums and death benefit of a standard universal life insurance policy. Here are the most common universal life insurance options:
- Variable universal life insurance: Lets you choose from a menu of investment options, though options are limited by your insurer.
- Guaranteed universal life insurance: Low-cost alternative to whole life insurance that offers permanent coverage.
- Indexed universal life insurance: Similar to variable universal life insurance, but has a lower guaranteed premium than whole life.
- Survivorship universal life insurance: Mainly used for inheritance or charity contributions.
- Joint universal life insurance: Similar to survivorship universal life insurance because there are two insureds on the policy. However, the death benefit will be paid out to the surviving person after the other passes away.
Your independent insurance agent can help review all universal life insurance options in depth to help you evaluate which form of coverage best fits your personal needs.
What Are the Disadvantages of Universal Life Insurance?
Green said that universal life insurance premiums can be very sensitive to changes in interest rates. So while the flexibility of universal life insurance can be a great benefit to some, it also requires you to really know how the policy works. You need to consistently monitor your policy's cash value and death benefit amounts.
If you don’t want to keep tabs on your life insurance policy, universal life insurance may not be the right choice for you. The fixed numbers of a whole life insurance policy might better suit your needs. But universal life insurance still makes sense for many folks, including:
- Families with special needs children or who care for an extra family member.
- Pensioners who want long-term coverage but can’t afford the fixed costs of whole life insurance.
- Wealthy individuals who want to offer a tax-free inheritance to their heirs as well as to have greater control over their life insurance’s cash value.
An independent insurance agent can further explain the potential disadvantages of a universal life insurance policy and help you weigh whether it's a good match for you.
Do Universal Life Insurance Premiums Increase With Age?
Yes, universal life insurance premiums increase throughout the life of the policy, as you age. That means that using only your policy's cash value to cover its increasing premiums can lead to your accumulated cash value completely running out over time. If you run out of cash value in your policy or miss one of your premium payments, you could end up with a lapse in your coverage.
Is Universal Life Insurance Worth It?
One reason many folks find universal life insurance worth it to invest in is because of its flexible cash value. The cash value of your universal life insurance policy is your money to do whatever you want with. Since your cash value grows over time, you might find its best to let it accumulate for a while before taking it out.
Some popular options for universal life insurance's cash value include:
- Using it for retirement income
- Using it to pay off a mortgage
- Using it to buy a second home
- Using it to fund a child’s education
- Using it to pay for medical expenses or a retirement home
The cash value of a universal life insurance policy grows on a tax-deferred basis, which means you won’t pay taxes on its growth. An independent insurance agent can further help you evaluate whether universal life insurance is worth it.
How Universal Life Insurance Premiums Work
Premium flexibility is one of the main advantages of universal life insurance. Premium options include:
- Single premium: This is a one-time, lump-sum initial payment that pays for the purchase of the policy.
- Fixed premium: This option works by paying out specific amounts of the overall premium periodically, and usually lasts less than the life of the policy.
- Flexible premium: This option allows you to vary the amount of premiums you pay within certain limits.
Your independent insurance agent can help you determine which universal life insurance premium option is right for you.
Why Choose an Independent Insurance Agent for Life Insurance?
Independent insurance agents simplify the process by shopping and comparing life insurance quotes for you. Not only that, but they’ll also cut the jargon and clarify the fine print so you know exactly what you’re getting.
Independent insurance agents also have access to multiple insurance companies, ultimately finding you the best universal life insurance coverage, accessibility, and competitive pricing while working for you.
Sources
money.com/universal-life-insurance-guide/#:~:text=Life%20insurance%20premiums%20increase%20as,to%20cover%20the%20higher%20premiums.
iii.org/article/what-are-different-types-permanent-life-insurance-policies
