A Guide To Universal Life Insurance.

Shawn Plummer

CEO, The Annuity Expert

A popular permanent life insurance type is universal life insurance (UL). It comes with cash value, and you can set the premiums to what you want. So if you don’t spend as much on premiums, some money will come from your cash value in the policy. A UL policy is designed for people trying to build a nest egg without going into a higher income or permanent need.

What is universal life insurance?

A universal life insurance policy is a type of permanent life insurance policy that allows you to customize your coverage and premiums. These policies offer flexible premium payments, allowing you to adjust the amount depending on your needs, and a cash value component that can be used in other ways, such as an emergency fund or retirement savings. Universal Life also provides a death benefit to your beneficiaries when you pass away.

How Does Universal Life Insurance Work?

Universal Life provides you the convenience and flexibility to pay into your policy’s cash value with each premium payment. If enough cash value accumulates over time, you can withdraw funds like a typical bank account.

Each month, your fee is allocated into two parts – one that pays for life insurance coverage and the other which goes towards a savings/investment account. This cash value component is an efficient way to save while still protected with life insurance policies.

This form of life insurance is incredibly versatile, as you can choose your premium amount. The base fee covers the death benefit and administrative costs, while any additional money will increase your cash value. In addition, this guaranteed growth rate set by the insurer has a minimum annual interest rate for added security!

While some individuals choose to pay the highest premium allowed (determined by the IRS) in their earlier years with hopes of accumulating a more significant cash value that would ultimately cover premiums later on, it is an uncertain move due to escalating cost of insurance as you age.

How To Use Universal Life Insurance Cash Value

You can use the cash value to pay your premiums with universal life insurance. The policy lasts your whole Life and pays out a tax-free death benefit when you die.

There are two parts to a UL policy:

  • The death benefit
  • The cash value

The cash value can earn interest and isn’t taxed while it grows. You can use the money in your cash value when you are alive to:

  • Pay the life insurance premiums
  • Withdraw cash
  • Take out a loan

The money you put into a cash value grows and is not taxed until you take it out.

Also known as adjustable life insurance, it is flexible. For example, you can change the number of your monthly payments and the death benefit. So even if you can’t pay, there will be enough money to pay for it. But it would be best to wait until it has accrued enough interest before you do this.

But if the investments made with your policy do not make money, you will have to keep paying for your insurance. If you use up all the money in the policy and still do not pay for it, your insurance policy will lapse (expire).

Some people choose UL insurance for their estate. This coverage provides a permanent payout and is used to cover taxes and the cost of leaving money to their legacy.

Helpful tip: If you need help setting up an estate plan at an affordable cost, we recommend:

How Much Is Universal Life Insurance?

How Much Are Universal Life Insurance Premiums?

The cost of a universal life policy can vary significantly depending on the type and amount of coverage you purchase. Generally, universal life insurance policies are more expensive than term life insurance policies due to their permanent nature, flexible premiums, and additional features like cash value accumulation.

Premiums for universal life policies can range from a few hundred dollars per year to thousands of dollars depending on the size of your policy and any optional add-ons you choose, such as additional riders or accelerated death benefits. The cost can also vary based on age, gender, health status, and lifestyle.

Universal Life Insurance Quotes

Before purchasing a universal life insurance policy, use a calculator to estimate the cost and benefits of different coverage options. Our insurance calculator considers several factors, such as your age, health status, and desired death benefit amount, to estimate the premiums you can expect to pay and the value of your policy over time. Additionally, many calculators offer a side-by-side comparison of different life insurance policies, including UL, whole Life, and term life. Comparing rates can help you better understand the pros and cons of each option and make an informed decision about which policy is right for you.

Should I Cash Out my Universal Life Insurance Policy?

There are several things to consider before cashing out your policy. The first and most crucial factor to consider is whether or not you need the death benefit that your policy will provide. If your beneficiaries are financially secure, or if you have other sources of life insurance, such as an employer-sponsored plan, then cashing out may be the best option.

Another factor to consider is the cost of your policy. If you’ve been paying into the policy for years, and it has built up a significant amount of cash value, then cashing out may not be necessary to get any benefit from your policy. Also, depending on the Universal Life Insurance policy type, there may be tax implications if you decide to cash out.

Does Universal Life Insurance Offer a Death Benefit?

Yes, universal Life offers a death benefit. This is an integral part of the policy and should be discussed with your agent or representative when you purchase the policy. The death benefit is designed to provide financial protection to your beneficiaries in the event of your death.

This can help them pay off debts, cover funeral expenses, and replace lost income. Universal Life can also provide additional benefits, such as access to a cash value or the ability to build wealth and save for retirement. Understanding all the features and benefits of universal Life is essential before deciding.

How Does Universal Life Insurance Build Cash Value?

Universal life insurance can build cash value over time. This is because the policy owner can allocate a portion of the premiums toward an account, which can grow over time due to investments made by the life insurance company.

This cash value account may accumulate tax-deferred interest, meaning it won’t be taxed until the money is withdrawn. The policy owner can use the cash value to help cover premiums or take out a loan if needed. The cash value may sometimes be used as an added death benefit.

The cash value could grow significantly over time depending on how much money is invested into the account and the size of the premium payment. However, the cash value is not guaranteed and can fluctuate with changes in policy or market conditions.

Can You Add Riders to Universal Life Insurance Policies?

Yes, you can add riders to universal life policies. Riders are additions or amendments to the policy that provide additional coverage or benefits. Everyday riders available for universal life policies include accidental death and dismemberment, waiver of premium, accelerated death benefit, and long-term care coverage.

Adding riders to your policy will increase the cost of the premium you pay each month. Still, it can also provide valuable coverage in an unforeseen illness or injury. Therefore, researching and understanding any riders you are considering before adding them to your policy is vital.

When adding a rider to your universal life policy, speak with your insurer or financial advisor about exactly how the rider will work. They can help you decide whether a rider suits your needs and budget.

What Are The Three Main Types of Universal Life Insurance Policies Available?

The three main types of universal life insurance policies are variable, index, and traditional.

  • Variable universal life insurance (VUL): This allows policyholders to invest in various subaccounts, such as equities, bonds, and money market funds. This offers the potential for more significant growth than other types of permanent life insurance but also comes with a higher risk.
  • Indexed universal life insurance (IUL): Policyholders can benefit from the growth potential of stock markets without the risk associated with investing in stocks directly. This type of insurance allows policyholders to participate in index-linked interest rates tied to popular stock market indices such as the S&P 500.
  • Traditional universal life insurance (UL) is the most common permanent insurance policy type. It has a set premium, guaranteed death benefit, and flexible cash value component that can be used to pay premiums or taken as a loan later in Life.

What Is Guaranteed Universal Life Insurance?

Guaranteed Universal Life Insurance (GUL) is a type of permanent life insurance that allows you to choose your death benefit amount and the length of coverage. With GUL, you are guaranteed level premiums for the duration of the policy, although it typically costs more than term life. Unlike traditional universal life policies, GUL policies do not contain a cash value component and are designed to provide death benefit coverage over the long term, often up to age 90 or beyond.

Finally, it’s important to remember that GUL policies are not the same as hybrid life insurance policies, which offer both a death benefit and an investment component. Ultimately, GUL policies are designed to provide more affordable coverage for individuals who need permanent life insurance protection but don’t have a high net worth. With this in mind, speaking to a financial advisor is essential to ensure you select the right coverage for your particular needs.

Who May Benefit From a Guaranteed Universal Life Insurance Policy?

A guaranteed universal life policy is ideal for individuals who need more coverage and flexibility than a traditional term life policy but don’t want to pay the higher premiums of whole life insurance. It can also benefit those seeking to supplement their existing life policies or needing coverage beyond retirement age.

It’s also an excellent option for those who want to provide financial protection for their loved ones in the event of their death by giving them a cash payout when they pass away. It can also be used as an estate planning tool since it’s possible to customize the policy and specify how the death benefit will be distributed among beneficiaries.

What is Better, Universal Life vs. Term Life Insurance?

Universal Life and term life insurance offer a form of life insurance protection, but how they are structured is quite different. Universal Life provides permanent coverage with flexible premiums and death benefit options, while term life policies provide temporary coverage at fixed rates over a predetermined period.

When choosing between universal Life and term life insurance, it is crucial to consider the advantages and disadvantages of each to make an informed decision. Universal Life typically provides more flexibility than term life policies, allowing policyholders to adjust the premiums or death benefit amounts over time. This can benefit those on a tight budget as they can adjust their premiums per their changing financial situation.

On the other hand, term life insurance tends to be less expensive than universal Life and does not require any adjustments based on your current financial situation. Furthermore, its coverage period is set for a predetermined amount of time, which may be an attractive option for someone not looking for long-term coverage.

What is Better, Universal Life vs. Whole Life Insurance?

When considering which policy is right for you, whole life insurance and universal life insurance are both essential tools that can provide financial security and peace of mind during uncertain times. Therefore, it’s crucial to comprehend the distinctions between these two policies to make an informed decision about your future.

Universal life insurance offers flexible premium payments and the ability to adjust your death benefit as needed. In addition, the cash value of universal life insurance typically grows at a tax-deferred rate. As a result, it can be used for various financial activities, such as providing an income stream during retirement or helping to offset long-term care expenses.

On the other hand, whole life insurance provides a guaranteed death benefit and fixed premiums that remain the same over the policy’s Life. The cash value accumulates on a tax-deferred basis at a guaranteed rate of return determined by the insurance company. This cash value may be accessed through loans or withdrawals, though it can affect your death benefit if misused.

Universal Life Insurance Pros

For high-net-worth individuals who need an additional tax-deferred savings vehicle, universal life insurance comes with some key advantages:

  • Your entire Life, you will have this insurance.
  • You can earn interest that does not dip below 0%.
  • The money that it collects is tax-deferred.
  • You can decrease your monthly payments if you want to do that.
  • Universal Life benefits are paid when the insured dies and the beneficiary files a death claim with the insurance company. The default payout option is a lump sum check.
  • Coverage is designed to last to a specific age. Unlike term insurance, Universal Life can last for your entire Life.
  • Your premium payments are customizable throughout the Life of the policy. For example, you can lower or skip the premiums altogether, reducing your cash value or causing the policy to end sooner. Conversely, you can also pay additional premiums to increase the cash value or be able to skip future premiums.
  • Universal Life is generally purchased to achieve a death benefit that lasts your whole Life for the least amount of premium, not for cash values.
  • Your beneficiary receives the death benefit income tax-free.

Universal Life Insurance Cons

  • It is more expensive than term life insurance.
  • Cash value growth potential is capped.
  • The cost of insurance premiums increases as you age.
  • If you use the cash value to pay for premiums, no money may be left to pay for your insurance coverage, and the policy expires.
  • Plan on having minimal cash values.

What is the disadvantage of universal life insurance?

The main disadvantage of universal life insurance is that it typically has higher premiums than other types of permanent life insurance. This is because universal life insurance policies are designed to last the insured’s entire lifetime, building cash value over time. In addition, universal life insurance policies offer death benefit protection and the potential to accumulate a cash value that can be accessed through policy loans or withdrawals.

Another potential disadvantage of universal life insurance is that it may not provide as much death benefit coverage as other permanent life insurance. This is because the death benefit coverage in a UL policy is typically based on the cash value of the policy rather than a set amount. Therefore, if the policy’s cash value does not keep pace with the death benefit coverage, the death benefit may not be sufficient to cover the needs of the policyholder’s beneficiaries.

Finally, universal life insurance policies may have surrender charges if the policy is surrendered or canceled before the end of the policy term. These charges can eat into the policy’s cash value over time, making it difficult for some policyholders to access it effectively. As a result, individuals considering universal life insurance may want to consider other options that offer greater flexibility and potential cash value growth.

Who should buy universal life insurance?

Universal life insurance products are usually for people with a lot of money or who need to ensure that the government does not take their money. However, it can be good to use this if you have maxed out all your investments and want more money without going into a higher tax bracket.

Many insurance companies offer universal life insurance policies and typically provide quotes through independent brokers. Popular options include John Hancock, Prudential, Nationwide, North American, and Allianz. Click below to start your search for a universal life insurance quote. Before selecting a policy, it is important to carefully compare the available quotes and read the fine print of each policy to find the option that best fits your individual needs and financial situation.

Next Steps

Suppose you are thinking about purchasing a universal life insurance plan. In that case, it is important to carefully compare the options available from other insurance companies to find the best policy that fits your needs and budget. In addition, given universal life insurance’s flexibility, it is essential to carefully review the policy details and speak with an insurance professional if you have any questions or concerns. However, with careful planning and research, a universal policy can be a valuable financial planning tool for individuals seeking long-term protection and potential growth opportunities. Request a quote below.

What Is Universal Life Insurance, And How Does A Policy Work?

Need Help Getting Life Insurance Coverage?

If you have a preexisting medical condition and want to buy life insurance, you will need help from an expert. This person can help ensure you get coverage so you don’t get declined.

Warning: Applying for life insurance without a medical exam can be risky. If you get declined coverage, it could be at least two years before you can get any life insurance.

Impaired Risk Life Insurance
Have You Been Declined Life Insurance Coverage Before?

Frequently Asked Questions

A universal life insurance policy is best described as an?

Universal life insurance is a type of permanent life insurance that includes an investment savings element. This type of insurance usually has low premiums.

Who offers the best universal life insurance?

John Hancock, Nationwide, and Prudential offer the best universal life insurance because of their higher maximum coverage levels, low premiums, and A+ (Superior) rating from A.M. Best.

Which is a better whole life or universal Life?

There is no clear answer about which type of life policy is better. For example, whole life insurance offers death benefit protection and the potential to accumulate cash value over time, while universal life insurance policies provide more flexibility regarding premiums and death benefit coverage. Ultimately, the best type of policy for an individual depends on that person’s specific needs and financial situation.

Is universal life insurance a sound investment strategy?

Universal life insurance can be a good investment strategy for individuals looking to grow their cash value over time and access those funds when needed.

Which riders will pay a death benefit?

Riders that will pay a death benefit include the accelerated death benefit rider, the child rider, and the spousal rider. These riders are designed to provide financial protection for the policyholder’s beneficiaries in the event of the policyholder’s death.

Can a universal life insurance policy be sold?

Yes, a universal policy can be sold. The policies are typically sold through financial advisors or life insurance agents.

Can a universal life policy be paid up?

Yes, a universal life insurance policy can be paid up. This means that the policyholder can make one final lump sum payment to cover their ongoing premiums fully and ensure that the policy remains in force for its full term.

What happens if I miss a payment on my universal life insurance policy?

If you miss a payment on your policy, there may be several consequences, depending on your policy’s specific terms and conditions. For example, some policies may allow you to make a one-time “grace period” payment to reinstate your coverage after missing a payment. However, this will typically come with additional costs or fees.

Is universal life insurance cheaper than whole Life?

There is no one-size-fits-all answer to this question, as the cost of life insurance depends on many factors, including the death benefit amount, the policy term, and the age and health of the insured individual. However, universal life insurance tends to be more flexible and less expensive than whole life insurance.

What happens to cash value in universal life policy at death?

The cash value and the investment gains stay with the insurance company, and the beneficiaries inherit the death benefit tax-free.

What happens when a universal life insurance policy matures?

When a universal life insurance policy matures, the policyholder will typically have the option to continue their coverage or cancel it. However, if the policy continues, the premiums will generally increase yearly as the insured individual ages.

Can you cash out a universal life insurance policy?

It is possible to cash out a universal life insurance policy, but this will typically come with several fees and surrender charges.

What Is The Death Protection Component Of Universal Life Insurance Always?

The death protection component of universal life insurance always is a death benefit. This means that in the event of the policyholder’s death, their beneficiaries will receive a tax-free death benefit payout from the insurance company.

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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