Life Insurance


What Is Universal Life Insurance?

Universal life insurance is a popular choice for many people who want lifelong insurance coverage, mainly because you can choose how much money you put into the policy, up to a certain point. The flexibility of a universal life insurance policy makes it a popular choice, though it may not actually be the best choice for you.

A UL’s flexibility is both its strong suit and its potential pitfall, which means you’ll probably want to seek out the advice and knowledge of an independent insurance agent before deciding which type of permanent policy is best for you.

What Is Life Insurance?

life insurance is a type of permanent life insurance, which means it stays in effect for your entire life and builds a cash value component. 
It differs from other types of permanent life insurance options, such as whole life insurance, by giving you the flexibility to adjust certain aspects of your policy. The two parts of your policy that you can change are the death benefit and your premium. 
Your UL’s premium will have a minimum payment that’s required to keep the policy active. You can choose to pay this amount, or you can choose to pay a higher amount. The extra money you pay goes directly into your cash value, allowing it to grow at a faster rate than simply paying the minimums. 
As your policy grows, your cash value might reach a point where it can pay for your premiums, but once your cash value runs out, your policy will lapse. 
You can also adjust your death benefit within a specified amount. Lowering your death benefit can help lower your premium payments. 
If you pull out some of your cash value and never “repay” that amount into your policy, then your death benefit will be reduced by the same amount that you took out. 


Is Life Insurance Right for Me?

The flexibility of universal life insurance can be a benefit to some people, but it requires you to fully understand how the policy works and to monitor the cash value and death benefit amounts. 

If you don’t want to keep tabs on your life insurance policy, then universal life insurance isn’t a good fit for you – you might prefer the fixed numbers of a whole life insurance policy. 

Universal life insurance could make sense for some people who value the permanent coverage and cash value, but also need the greater flexibility that comes with a UL policy. That could include:

  • Families with special needs children or who care for an extra family member. Their financial needs may change over time, so having a permanent policy with adjustable premiums could be beneficial. 
  • Pensioners who want long-term coverage but can’t afford the fixed costs of whole life insurance. 
  • Wealthy people who want tax-free inheritance and who also want to be able to have greater control over their life insurance’s cash value. 

A universal life insurance policy may be a good fit for anyone who likes the permanent coverage and cash value build-up, but doesn’t necessarily want to have control over the investments that a variable life insurance policy brings. 

A UL’s main strong points are its adjustable premium and death benefit, allowing you to grow your policy when you’re able to or just make minimum payments if your budget is tight. 

But universal life’s main negative is that it requires you to monitor what’s happening with your policy. The greater flexibility can result in your cash value not building to a point where you can use it in a meaningful way if you’ve only paid the minimum amounts. 

It could even result in your policy lapsing if you start using the cash value to pay for your premiums without keeping track of the remaining cash value amount. 

Comparing Life Insurance Options

There are a few different types of universal life insurance policies available, each with slightly different additions to the adjustable premiums and death benefit of a standard universal life insurance policy. 

  • Guaranteed universal life. This type of UL doesn’t allow you to adjust the premiums or cash value. It’s designed as a lower cost alternative to whole life insurance, with permanent coverage but with a much lower cash value build-up rate than whole life or standard universal life. 
  • Variable universal life. A variable universal life policy lets you choose which stock market options your cash value will be invested in, though the options are limited to what your insurer gives you. 
  • Indexed universal life. Similar to variable policy, although you won’t be able to choose which stocks your cash value invests in. Rather, the cash value will be tied to a stock market index, such as the S&P 500 or the NASDAQ-100. 
  • Survivorship universal life. A survivorship life insurance policy is mainly used for inheritance or charity contributions. The death benefit will only be paid out when both owners, typically a married couple, pass away.  
  • Joint universal life. Joint life insurance is similar to survivorship in that there are two owners of the policy, but the death benefit will be paid out to the surviving person after the other passes away. 

Subscribe to our newsletter

Elit taciti quam fermentum, aperiam malesuada corrupti urna sapien aperiam itaque morbi bibendum possimus fames suspendisse