Key Takeaways What Is Universal Life Insurance? How Universal Life (UL) Insurance Works Advantages and Disadvantages of Universal Life Insurance Types of Universal Life Insurance Universal Life Insurance vs. Term Life Insurance vs. Whole Life Insurance How Much Does Universal Life Insurance Cost? Is Universal Life Insurance Right for Me? FAQs Sources
This article will discuss how universal life insurance works, its pros and cons, why it stands apart from other life insurance types, and expected costs.
By not carefully selecting a permanent form of life insurance, like universal life insurance, you might end up with a cheaper term policy only to find out after the fact that it has an expiration date, and you’ll need a new (and more expensive) option down the line.
Rather than pay monthly premiums only to have it all end prematurely, a universal life insurance policy can give you peace of mind that you are covered permanently, and your policy will always be there.
Universal life insurance is a permanent life insurance policy that offers a cash value account that can grow with the market. There are a few types of universal life insurance policies, some of which offer opportunities for larger cash value growth at a slightly higher cost.
Universal life insurance differs from whole life insurance because it has flexible premiums, flexible death benefits, and more variety for cash value accounts. Namely, you can adjust your premium payments throughout the span of the policy and even change your death benefit amount in some cases.
The biggest feature of a universal life insurance policy is the ability to adjust your premium payments or death benefit. You have the ability to pay extra toward your premium, and that extra can earn interest as well.
As you age, you may no longer need the same financial protection level as when you took out your policy. With a universal policy, you can reduce your death benefit as your needs decrease.
Assuming you make your premium payments, your policy will remain in effect permanently.
While you are still alive, you can utilize the cash value component of that policy, which means you can take money out of it in the form of a direct withdrawal, a policy loan, or even use it toward your premiums. However, any remaining money in that cash value account is forfeited back to the insurance company when you pass away.
According to a Forbes survey, 24% of people have no emergency savings. For that reason, the cash value account could serve as a form of savings for policyholders and their families.
Only 65% of people could survive for three months if they lost all income. Borrowing against a cash value account is something that can be done multiple times throughout the length of the policy, based on returns.
Tip: Some universal policies let you use your cash value money to cover premiums for short periods.