Universal Life Insurance

Universal Life Insurance Basics

Universal life insurance refers to a permanent insurance policy that offers a guaranteed death benefit, a cash value, and flexibility in adjusting premiums and the death benefit.

Below, we’ll explain the basics of universal life insurance and explore its different types!

What Is Universal Life Insurance?

Universal life insurance, also called UL insurance, covers policyholders for the rest of their lives as long as they continue paying their premiums.  

A universal life policy is bundled with an investment component referred to as a “cash value“. During your lifetime, you can borrow from or withdraw from the cash value whenever you need it. However, if you die without repaying these loans, the insurer will deduct them from your beneficiaries’ death benefit. Aside from that, you have the option to adjust your policy premiums and death benefit as your needs and lifestyle change.

How does Universal Life Insurance work?

Just like whole life insurance, UL insurance lasts throughout your life (as long as you continue to pay your policy premiums) and includes a death benefit along with an accumulating cash value. However, in comparison with term life insurance and whole life insurance, UL insurance offers greater flexibility. 

It is true that both whole life and universal life insurance build cash values, but UL insurance earns “a market rate of interest,” because of which you can qualify for lower premiums and build your cash value faster. As the cash value grows, it is also possible to withdraw money without impacting the death benefit. 

In contrast to whole life policies, which have fixed premiums for the entire policy period, premiums for universal life insurance can fluctuate depending on the market and the investment strategy of the policy. As the insured ages, their insurance premiums will rise as well. However, the accumulated cash value will help cover that increase in insurance premiums.

What is the maturity date for UL insurance?

Maturity Date: In life insurance, the date when your policy ends and you become eligible for maturity benefits is known as the “Maturity Date”.

A universal life policy has a set tenure, after which it matures. Universal life insurance matures when you reach a specific age (often between 85 and 120). When a policy reaches its maturity date, the policyholders receive payouts and their contract end. In most cases, the payout equals the policy’s cash value. In case the insured lives beyond the maturity date and has used the majority of the cash value to pay premiums, there will be no coverage, so there will be a relatively little payout.

If the insured die before your policy matures, your family will only receive the death benefit, while any cash value you have accumulated goes to your insurance company. This is by far the worst part! 

Universal life insurance types

Generally, two types of universal life insurance are available, each offering unique flexibility and the ability to build cash values.

Let’s explore the different types of universal life insurance: 

  1. Indexed universal life insurance

Indexed universal life (IUL) insurance gives you the flexibility to adjust your premiums and death benefit in the future within certain limits. An insurance policy like this builds cash value by linking it to major stock market indexes like the S&P 500, Russell 2000, and other stock market indexes. 

When the index performs well, your cash value account earns interest. However, IUL insurance also includes loss protection, so you won’t incur any losses if the stock market declines. While this policy provides loss protection, it does not guarantee incredible gains for your index because it has a participation rate and cap that limits your interest rate.

  1. Variable universal life insurance:

Variable universal life (VUL) insurance allows you to adjust premium payments and death benefits to suit your needs. In this type of universal policy, you can build cash value and choose your investment options. You have the option to invest your cash value in various “subaccounts” like stocks, bonds, or money market accounts.

As the investments rise, so does the policy’s cash value; however, as the investments fall, so does the cash value, leaving the policy at risk of lapse.

Is Universal Life Insurance worth it?

Do you think universal life insurance would be a good investment for you? A universal life policy could be the right choice if you want to build tax-deferred savings and won’t need them for several years. Investing in UL policy can help you manage life’s uncertainties, build assets, and leave a legacy for the next generation. 

As long as your policy’s cash value remains intact, you’ll continue to earn interest tax-free. The downside of UL insurance is that your accumulated cash value could go down if your investments perform poorly, and this depends on what type of UL policy you have.

The Bottom Line

If you are considering universal life insurance, you should first consult a certified insurance agent. They can assist you in finding the best universal life insurance plan tailored to your needs.

For information about different types of insurance, contact us at theinsuraneinsights.com!