What is Universal Life Insurance?

You might be more familiar with the whole life insurance, but Universal Life Insurance is another form of permanent life insurance. The primary benefit of this type of life insurance is that the policy’s cash value can be used to pay for its premiums. Once your policy becomes active, you will make monthly premium payments. Value accrues in your policy and you earn interest as well. This is why some people use their permanent life insurance as a savings account. You can borrow against the cash value of your policy. The interest rate you earn on a universal life insurance policy’s cash value can change and fluctuate, whereas with a whole life insurance policy the interest rate is fixed.

Understanding Universal Life Insurance

Your universal life insurance coverage starts when you begin making premium payments and lasts your whole life if you continue to make payments. A portion of your premiums goes towards your cash value. The cash value you accumulate can earn interest that you can eventually use to pay for your monthly premium. The interest you earn is variable and can go up and down.

There are two main types of universal life insurance. Indexed universal life insurance is very similar to traditional universal life policies, but the cash value is tied to an index. Like a 401k investment, there is the opportunity to gain high returns, and also the risk of higher losses.

Guaranteed universal life insurance means that your policy can’t lapse if your cash value goes to $0. There is little to no cash value with a guaranteed universal life insurance policy, which also makes it one of the cheaper permanent life insurance types.

Universal Life Insurance Benefits

There are many key benefits to a universal life insurance policy. If things change, and you no longer need your policy, you can cancel your policy and get some of your money back with a universal life insurance policy. Once you hit a certain amount of time determined by your insurance company and accrued enough value, you can borrow money from your policy. Universal life insurance plans last your entire life, so you don’t have to worry about looking for another policy when yours expires.

Who is the Ideal Customer for a Universal Life Insurance Policy?

A universal life insurance policy isn’t for everyone. If you have a high net worth, want tax-deferred savings, have a child with special needs, or have high-cost dependents, a universal life insurance policy might be right for you. At Insurance Best Prices, we help customers determine which policy is right for them.