What is Universal Life Insurance
One of the most popular permanent life insurance products is Universal Life Insurance. This type of policy offers a certain amount of built-in flexibility. It’s this flexibility that is the primary difference between Universal Life and Whole Life insurance.
Policyholders can modify the amount of the premium and death benefits as their needs and goals change. Universal life insurance is typically less expensive than Whole life insurance, but can still be structured to provide level premiums and guaranteed death benefits for life.
Below is a short video to help you learn more about Universal Life Insurance.
Universal Life Premium Options
Single Premium policy
A Single Pay Premium universal life policy is paid for by a single, substantial, initial payment. Because single pay policies are instantly fully funded, the insured doesn’t have to worry about making any future premium payments. By doing so, the policy would likely be deemed a “modified endowment contract,” which affects the taxability of the access to cash values during the insured’s lifetime…but has NO effect on the tax-free treatment of the death benefit.
Level Premium policy
A Level Premium policy features premium payments that are designed to be level (or fixed) over the life of the policy.
Flexible Premium policy
A Flexible Premium policy features premiums that can increase, decrease, stop, or be temporarily suspended, according to your needs. The premium’s flexibility is specified in each policy.
Flexible Premium policies include a risk that the policyholder may have to pay a premium rate that is greater than expected to maintain the policy’s viability. This can happen if the expected interest paid on the accumulated value of the policy is less than originally assumed at the time of purchase, or if other charges (i.e. mortality charges) increase beyond what is assumed when the premium is calculated at inception.
Adjustable Death Benefit
Policyholders can modify the amount of death benefit and premiums as their needs and goals change.
Builds Cash Value
As with Whole Life policies, Universal Life Insurance builds cash value. But cash values on today’s universal life policies (especially those that are less expensive than whole life policies) tend to be much smaller.
Most Universal Life policies come with an option that allows the policyholder to take out a loan/borrow money against the cash value of their policy. These loans require you to make interest payments to the insurance company. The insurer charges interest on the loan because they are no longer able to receive any investment benefit from the money they loaned to the policyholder.
Outstanding loans are deducted from the death benefit when the insured has passed on.
Most Universal Life policies also come with an option that allows for tax-free withdrawals up to your basis in the policy. You can also borrow against the cash value using policy loans. If you borrow money using the policy’s loan features and die with the loan not having been paid back, the balance of the loan will be deducted from your death benefit. It is not recommended to take policy loans on a No Lapse Universal life policy as by doing so, you may jeopardize your guaranteed death benefit.
With the No-Lapse feature (or “Secondary Guarantee”), the policy promises to stay in effect for the guaranteed period (usually the insured’s life) if the premium is paid on time, even if the cash value has run out. These policies can be incredibly valuable as death benefits are guaranteed as long as certain conditions are met, and premiums are paid, as scheduled.
The lower premiums on a Universal Life policy introduce a level of risk. The growth of your cash value is partially dependent upon current interest rates. If at any time, interest rates drop and the assumed growth of your cash value fails to meet expectations, the current cash value may not be enough to sustain your coverage. A period of prolonged lower-than-expected interest rates could wipe out all of your cash value and could leave you holding the bag monetarily to make up the difference, in order to keep the policy in force.
Universal Life Insurance Offers:
- Flexible premiums
- Adjustable death benefits
- Cash values that you can access at any time
- Lapse protection (at certain companies) to guarantee your coverage won’t expire
- A death benefit that is usually income tax-free
Uses for Universal Life Insurance
- Final expenses
- Income replacement
- Debt coverage
- Business succession
- Estate replacement
How much life insurance do I need?
How much insurance you need is a function of your unique individual situation. As a result, following a “rule of thumb” is not necessarily the most responsible advice that we could give you. However, there are some tricks that we have learned over the years. Our How Much Life Insurance is Enough web page can provide essential information that can help you determine how much coverage you really need. By using our easy-to-use life insurance needs calculator, you can quickly get an actual estimate in just seconds.
Universal Life Insurance Quote
Get the Best Quotes for Universal Life Insurance
Call Accuquote today at 800-442-9899 and we’ll help you figure out what kind of policy makes the most sense for your needs. You can also click the button below to get a free online Universal Life Insurance quote. It’s quick and easy.