Universal Life Insurance Guide
Universal life insurance is a form of permanent life insurance for policyholders who want the additional control over premium payments and death benefits.The biggest difference between universal and whole life is that universal offers more flexibility to the policyholder, but also gives fewer guarantees.
Universal life is a good option for people who might want to occasionally skip a premium payment without losing their life insurance coverage or pay their premiums on a more adjustable schedule. It’s also good for people who might want to change their coverage levels over the course of their lives, as their financial situations, health situations or family needs change.
Universal Life Insurance Features
The key features of universal life insurance are:
- Permanent coverage — Remains in effect for the duration of the policyholder’s life – not just a fixed number of years.
- Pays a death benefit —
- Earns cash value — It offers a cash value investment component that allows the policyholder to save for the future even while making premium payments.
- Flexible benefits, payments and terms — Policyholders can change their payment schedules, adjust the level of death benefit, or even decide to stop making premium payments while allowing the premiums to be withdrawn from the policy’s cash value account.
- Transparent Funds — You get a detailed breakdown of exactly how much the insurance company is keeping and how much goes to the other parts of the policy.
- Death Benefit Lapse — Maintaining the death benefit can be up to the insurer. If they fall behind on their premium payments, the cash value can start to decrease and possible lose some of the death benefit.
For an in-depth discussion of the above features and term life policies in general, see: Universal Life Insurance Features.
Finding the Best Universal Life Insurance
Universal life insurance is a more complex product than whole life, and policyholders who buy universal life need to be prepared to pay closer attention and provide ongoing monitoring of their policy over the years. Policyholders should look for a policy that allows them the features and flexibility that are most important to them.
To get more details on finding the best universal life policy in today’s market, be sure to read: Best Universal Life Insurance.
Universal Life Insurance Pros and Cons
The biggest advantage of universal life insurance is its flexibility to change over time. People’s financial needs can change dramatically over the course of their lives – the life insurance needs of a 25 year old married couple with one child on the way are significantly different from the needs of a 55 year old divorced man whose mortgage is paid off and whose children are grown.
For more advice on the pros and cons of universal life, be sure to read: Universal Life Insurance Pros and Cons.
Types of Universal Life Insurance
There are three main types of universal life insurance and all three are focused on different options for paying the premiums. Flexible Premium is the most common type mainly because the policyholder decides how much premium to pay, with a minimum and maximum amount. Fixed Premium is the second option, and with this policyholders can choose to have the discipline of a fixed premium, while still having the flexible benefit choices of universal life insurance. The third is Single Premium which is is often used strictly as an investment, as it requires a significant amount of money to pay the premium.
To find out more about these three different types of universal life, read our Types of Universal Life Insurance.
Pitfalls of Universal Life Insurance
Universal life insurance requires policyholders to pay attention to all the details of their policies and take responsibility for maintaining the cash value of the account. If policyholders miss too many payments, their universal life insurance policy might lapse, resulting in additional fees and/or loss of death benefit.
For more details on the pitfalls of universal life insurance, refer to Universal Life Insurance Pitfalls.
Universal Life Insurance Advantages
The biggest advantage of universal life insurance is that it allows policyholders to adjust the timing and amounts of their premium payments, while also adjusting the death benefit and cash value of the account. This enables policyholders to adapt their universal life insurance policies to suit their changing financial needs over the course of a lifetime.
To find out more advantages of universal life, refer to Universal Life Insurance Advantages .
Universal Life Insurance Performance
When buying a universal life insurance policy, choose a reputable, financially sound insurance provider that will be around for the long term. Also ask for detailed information on the financial performance of the life insurance policy, including the rate of growth for the cash value account.
For more details on the performance of universal life, refer to Universal Life Insurance Performance .
Indexed Universal Life Insurance
Indexed universal life insurance offers the same benefits as other universal policies, but with some additional growth potential for the cash value account. Indexed universal life bases its cash value interest rate on the upward movement of a major stock market index – for example, the S&P 500. When the market does well, the policyholder’s indexed universal life insurance policy benefits too.
For more details on what to expect, refer to Indexed Universal Life Insurance .
Who Should Buy Universal Life Insurance
People who buy universal life insurance typically want permanent coverage with a cash value component, but also want the ability to adjust their levels of benefits, payments and cash value over the years.
Another common trait of people who are good candidates to buy universal life insurance is that they are savvy about details and are disciplined in managing their financial affairs – they’re willing to be more actively engaged in overseeing the changes in their life insurance policy.
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