Universal Life Insurance

While universal life insurance is a permanent form of insurance, it has some of the features of term and whole life. Although universal life premiums are fixed after purchase, the cost of buying life insurance increases as you age because rates are primarily based on your age (mortality), health and medical history.

Universal life is not as cheap as term but not as expensive as whole, and offers an investment component. Most universal life insurance policies have a flexible premium with a minimum and maximum payment. The more money you pay, the greater the amount that is diverted into the cash value.

Overall, when you compare the pros and cons, universal life insurance can be a good investment option and source of life insurance for families with specific financial needs.

Cash Value and Death Benefit

Similar to premiums, the death benefit with universal life insurance is fixed, but the insured has the option to increase or decrease the insurance portion of the policy anytime, resulting in a proportionate adjustment in premiums.

However, the amount of the death benefit can be affected by the cash value, such that loans taken out against the policy and not repaid before a death benefit payout, will result in a payout lower than the face value of the policy.

The cash value can also be used to pay premiums, and as the insured person ages and the premiums increase, the cash value can be greatly diminished as it is used to pay premiums.

Universal life insurance is permanent and cannot be cancelled by the company as long as the premiums are paid. If a policyholder ever decides that he/she no longer wants the coverage, termination of the contract is very easy – just don’t pay the monthly premiums and opt to terminate your contract. If you do not notify your company to pay out the cash value, the carrier will continue coverage and use the existing cash value to pay the premiums due.

Flexible Payments and Benefits

Unlike whole life insurance which has a fixed premium and death benefit, universal can be modified to meet changing financial circumstances. Payments can be made monthly, quarterly, semi-annually or annually at the policyholder’s choice.

Universal policies have a minimum and maximum payment and the more the policyholder pays, the greater the amount diverted to the cash value. Most universal coverages do not guarantee a rate of return on cash value like whole life insurance.

Returns on Investment

Unlike whole insurance where the cash value is in a secure account, universal protection offers an investment account. The money in the universal life policy is invested in financial instruments and the returns are usually linked to a market index.

Some universal protection, called GULs, may guarantee a minimum rate of return on investment, but rates for these are slightly higher. If investments fail, the cash value reaches zero, and the insured person is unable to make payments, the policy may lapse.

No Lapse Guarantee

Whole life guarantees payment of the death benefit, but universal life can lapse if the cash value reaches zero and the policyholder is unable to pay the full amount of the premiums.

Universal life insurance with a no lapse guarantee can keep the policy in force if minimum premium payments are made over a specified time period. The no lapse guarantee is available as a rider and there is an additional cost for adding the option.

Tax Advantages

If cash value accumulates in a universal policy, the returns are tax deferred until they are withdrawn. A policyholder can use up to 90% of the cash value as security for a low interest loan with no repayment schedule. When the cash value is used to secure a loan, no taxes are due on the amount since a loan is not considered income or a capital gain. The tax deferments on investment returns make universal life insurance an attractive alternative to other investments.

Disability Waiver of Premium Rider

A disability waiver can be added to a universal policy to keep the contract  in effect if the insured becomes disabled and cannot make the minimum payments. There is a waiting period of between 90 and 180 days before the rider will begin making the premium payments.

If the disability lasts longer than the waiting period, the rider will make premium payments to keep the policy from lapsing. The waiver of premium rider is an excellent addition to standard coverage.

Conversions

In most cases, universal life insurance can be converted to whole or variable universal life insurance as long as the death benefit remains the same or is reduced. Most insurers will not require evidence of insurability for the conversion.

Whole life protection is more expensive for young consumers than universal life insurance, but it offers fixed lifetime premiums and greater security in the cash value. Variable universal protection gives the policyholder greater control over the investment of the cash value.

How Much To Buy

The amount of coverage needed depends on a number of factors including the age of the insured person and the reason for buying life insurance. Older individuals with few financial obligations may choose a low limit policy to cover final expenses, such as medical bills and funeral costs, while young, single individuals may need a higher limit to cover outstanding debts like student debt or car loans as well as any final expenses. Wage earners with dependents and families need more coverage to guarantee their family’s lifestyle can continue even if they die prematurely.

Factors To Consider

In addition to monthly expenses for the family, secondary life insurance, like mortgage protection, should be factored in when deciding on an appropriate death benefit.

Other sources of income, like Social Security survivor’s benefits, pensions, retirement funds such as IRAs and 401Ks, savings and investment accounts, may provide some income for surviving family members. Young children will need financial support for more years than older children and the cost of college tuition is another consideration when calculating the right amount.

The amount of life insurance you need depends on various factors, including your current budget and lifestyle, existing assets and liabilities, and potential future income, but to give you an idea, these are the figures experts generally recommend:

  • in your 30s: 15 times your annual gross income
  • in your 40s: 12 times your annual gross income
  • in your 50s: 8 times your annual gross income
  • in your 60s: 5 times or enough to cover final expenses

For Stay At Home Parents

Although not all parents are wage earners, parents who work in the home still make an important contribution. When buying life insurance for a parent who works in the home, the cost of the services they provide must be considered. These include child care, housekeeping, shopping and food preparation, and transportation for children who are not old enough to drive. When deciding on the right death benefit, the cost of replacing these services should be included.

The Right Kind of Protection

When choosing a life policy, consumers should compare the features and costs of different types of life insurance. Universal life insurance offers the security of a permanent policy with an initial cost that is about the same as inexpensive term life.

For young families, the lower cost may make universal life a good alternative to a more expensive whole life policy. Each person must consider their options to decide if this coverage will meet their financial needs and goals.

It is vital to keep life insurance in force even during periods of financial difficulty so survivors are not left with a financial burden and families have the resources they need to continue living.

Getting Affordable Rates

Consumers can find the best coverage and the most affordable rates by comparing the premiums of different policies and companies online. Comparison sites offer free quotes online from multiple providers so individuals can easily compare the rates and options provided by different companies for the same coverage.

By comparing features and premiums, anyone can find the life insurance they need at a price that fits comfortably in their budget.

Universal life insurance may not be the right choice for every individual, but it provides the best features of both whole and term life insurance. Over the course of a lifetime, the cost of universal insurance may be higher than the cost of whole life, but features like flexible premiums and no lapse riders make it the best choice for many people.

Universal Life Insurance Quotes

Universal life insurance is a type of permanent coverage which is cheaper than whole life, but instead of a savings account, it allows policyholders to invest in stocks and bonds. Although universal life insurance is not as cheap as term life, it offers the advantage of a permanent policy which never has to be renewed or replaced and can be used as an investment to build a nest egg for retirement.

When considering the best type, consumers should compare coverage options, companies, and premiums to see if which is right for them. Comparison sites online provide you free life insurance quotes so you can find affordable rates and buy the best policy available.

Cash Value

Universal life insurance has many pros and cons to consider before buying. Like whole life, universal policies have a cash value and can be used in financial or estate planning. The primary difference is how the cash value is invested.

Universal life insurance invests your premiums in financial instruments like stocks, bonds, commodities, and forex, which have a greater potential for positive returns or losses due to increased risk.

The cash value in whole life insurance is more like a savings account with a guaranteed rate of return. If investments do well, universal policies can pay higher returns than whole life, but remember that there is a risk associated with universal protection and investors could lose money. Overall, universal life insurance can be a great asset as an investment.

Flexible Premiums

Unlike whole and term coverage, universal life insurance does not have fixed premiums. Instead, it offers a minimum and maximum premium payment for flexibility. The more money that is paid into the policy, the more of your money goes into the investment account to build cash value. You can decide how much to invest each time you make a payment.

If a policyholder is unable to make a payment, universal life insurance allows the money to be taken from the cash value of the policy, offering additional flexibility during times of lower income. As you can see, universal life insurance allows you to adjust premiums to fit your financial needs as a family.

Now Permanent

Universal policies were first written and issued in the late 1980s, but they were risky for policyholders since they lapsed if the cash value of the policy reached zero due to investment failures.

Universal life insurance is now guaranteed not to lapse even if the cash value falls below zero. This means that policies have the same permanent protection as whole life insurance, at cheaper prices.

Policy Options

Universal life policies have a number of options including a guaranteed return on investments, and a no lapse guarantee. Other options include payment of the death benefit plus the cash value of the policy to survivors. A free online quote will reflect higher life insurance rates for policies with these options since they increase the insurance company’s expenses.

Basic universal life policies present greater risk to the policyholder but have lower rates. However, as long as you can remember to pay your premiums and can endure fluctuations in the stock market, all the additional riders may not be needed.

The benefit of an online universal life insurance quote is that it can give you price comparisons of the different policies with all the options, providing you quotes on every type of life insurance coverage before you make a decision to purchase a particular kind.

Financial and Estate Planning

Returns on investments are tax deferred until gains are removed from the policy, which can be an advantage in financial planning. The death benefit is tax exempt and may be used to cover estate and income taxes so heirs can preserve the estate. Similar to whole life, universal life insurance can be used to plan for expected expenses like a down payment for a home, college for children or retirement.

When determining how much coverage you need, insurance experts typically recommend 5 to 10 times your annual pre-tax income, and how much life insurance you buy depends on your debts and liabilities, including mortgage payments, credit cards, living expenses, business or personal loans, medical bills, and tuition.

Other experts break it down further by suggesting 15 times for people in their 30’s, 12 times for people in their 40’s, 8 times for people in their 50’s, and less for senior citizens and retirees. In the end, it really depends on your current income and what you are comfortable spending.

The easiest way to find out how much you can afford is to get free and instant quotes online, and at least you will have an idea of what your premiums may look like.

The Bottom Line

If you are considering permanent life insurance, I would recommend universal coverage over whole life. When weighing the pros and cons of each, universal is more affordable, flexible, and can result in greater returns than whole life insurance.

If you simply want insurance protection, then your best bet is to check out term life insurance and research the different types of policies within that category.

Group Universal Life Insurance

Group universal life insurance is most often offered through an employer, although it may also be available through trade and credit unions, fraternal organizations, colleges and universities, and other associations. As with any group insurance coverage, the premiums are lower because the policy covers an entire group rather than a single individual.

Unlike group term life insurance, which may be canceled when a person leaves his or her job, universal life insurance is a permanent policy and individuals are able to continue paying premiums to maintain the coverage.

Universal Life Insurance Pros and Cons

Universal life insurance is permanent coverage and has an investment component which accrues cash value over time. The premiums are usually flexible with a minimum and maximum payment rather than a fixed premium, like whole or term.

Because the risk to the insurance company is spread out over a group of employees ranging in health and age, universal rates are much lower than those of other permanent policies purchased individually. Group universal coverage is usually guaranteed and an individual cannot be turned down for chronic illness or advanced age.

On the other hand, group options have a cap on death benefit limits, which may mean an individual has less coverage than he or she actually needs. The policyholder may not be able to select the death benefit limit, and the death benefit may be based on his or her salary or other criteria set by the employer. Employees usually pay the entire premium for group universal protection, despite being purchased at discounted rates.

Alternatively, group term contracts are often employer-subsidized so the employee does not pay the entire premium. Despite the numerous pros and cons, universal life insurance is among the best types of coverage for families who are looking to build wealth and a nest egg for retirement.

Rate quote comparisons can show potential applicants just how affordable and cheap policies and rates can be, and allow insurance companies to offer free quotes so consumers can find the best policy available.

Advantages of Permanent Life Insurance

A permanent life insurance policy may be used as a financial instrument and investment because it has a cash value. Policyholders can borrow up to 90% of the cash value in the form of low interest loans. No income tax is charged on profits until gains are withdrawn from the policy, so the money can grow without affecting the policyholder’s tax bill.

Permanent protection does not expire and can only be canceled for non-payment of premium so the policy stays in effect throughout the person’s life.

Supplemental Coverage

The advantages of an inexpensive group universal life insurance policy usually outweigh the disadvantages. The biggest disadvantage is the limited coverage offered by employers. Purchasing an affordable term policy to supplement universal life insurance is cheaper than buying an individual permanent policy for the full amount. Since the coverage can usually be continued after an employee leaves his or her job, universal premiums remain cheap and affordable.

Final Word

Universal life insurance has its own pros and cons, but when compared to term, it has the advantage of never expiring or needing to be renewed. Unlike term contracts, policyholders will never need another medical exam or to apply for coverage again, avoiding an increase in policy rates.

Universal life insurance also has a cash value which is not available in term life policies. Since permanent life insurance has higher rates than term, some people cannot afford their protection, but group universal life insurance offers cheaper rates than individual, privately purchased policies, making universal plans affordable to more people.

What Is Indexed Universal Life Insurance?

Indexed universal life insurance is a type of policy coverage that became available about 10 years ago and is generally considered a good investment for retirement. The invested cash value of indexed universal life policies is tied to fixed income instruments and financial indexes like the S&P 500 and Nasdaq, also known as equities or stocks.

Most of the investments are in bonds and indexed universal policies offer a minimum guaranteed rate of return on the cash value, but can produce higher returns if the stock market performs well.

Consumers should research indexed universal life insurance before investing since there are pros and cons, depending on your risk tolerance and financial needs.

Permanent Life Insurance

Many equity indexed policies are types of guaranteed life insurance which never lapse. Universal life insurance rates are more affordable than whole life rates for the same coverage.

Some indexed coverage offers a minimum guaranteed return on investment, but it is usually lower than the rates guaranteed on the cash value of whole life insurance due to enormous upside. No investment opportunity allows you to have the best of both worlds.

Equity indexed bond investments usually have more stable returns over time than other universal policies which invest in stocks; however, universal life policies also offer the potential for higher returns over a longer period of time, helping build a nest egg for retirement.

Variable Life Insurance Rates

One of the disadvantages of indexed life insurance is the rates charged for the insurance portion of the policy increase over time. This means that more of the premiums are used to pay for the life insurance and less are put into the investment account. The minimum and maximum premium payments remain the same, but less money is invested in building the cash value.

Long term projections on the investment value of these policies may not take into account increases in insurance rates over the life of the policy, slowing the growth of your investment and money. Nonetheless, this can be balanced by the fact that you will accumulate a large cash value when the policy is first issued. The returns you receive, for example 10% per year, will be on a larger amount of money invested early on.

When in doubt, consumers can research to find other types of policies that better fit their needs. A life insurance policy comparison can help potential applicants find the best coverage and favorable terms and conditions.

Tax Advantages

Income tax must usually be paid on investment returns as they are earned. Fortunately, the profits on life insurance cash value are tax-deferred until they are withdrawn from the policy. Retirees often take out loans against the cash value of indexed universal life insurance policies so they do not have to pay income taxes.

If the amount of the loan equals the amount of the cash value, the policy is cancelled and taxes become due at that time. The single, lump sum tax payment can be substantial if this occurs.

A Long Term Commitment

As an investment, universal life insurance is a long term commitment. In order to realize a profit on your investment, policyholders must be prepared to remain in the investment and not change their strategy in the short term.

In addition to increases in the amount of premiums devoted to the insurance portion of the policy, there may be fees associated with the investment account, such as broker commissions and mutual fund fees.

Again, it is important to note that, life insurance is not a one-fits-all type of product. If you feel more comfortable getting a term life insurance rate that expires over a certain period of time versus a long term commitment to permanent coverage, then you should consider those options as well.

Due to the potential ups and downs of the stock market, some investors or consumers may not feel comfortable with universal life insurance and prefer something more stable and guaranteed, like a whole life policy.

Those planning to use indexed life insurance as a retirement investment should research policies and insurance companies carefully to find carriers that offer solid, long term returns while controlling risk.

Just as you research any financial product, ask the company for a prospectus or have a financial advisor explain how the investment account works. Universal life insurance as an investment can be a smart choice, but only if you decide it is the right policy for you and your family’s financial needs.

Compare Coverage and Quotes Online

Financial experts differ over the value of indexed universal life insurance as an investment. Many agents point out that term life insurance is cheaper and individuals can invest the money saved on coverage. Since term life rates increase with the age of the insured, the cost of term coverage actually averages out to about the same amount as indexed universal life insurance over time. Term life insurance does not offer the investment opportunities of equity indexed policies do and retirees can also benefit from the tax advantages.

Naturally, consumers must review indexed universal life insurance pros and cons before making a decision on whether to consider purchasing a life policy. Part of making that decision includes comparing life insurance quotes to determine whether premiums can fit into your budget.

Cheap Universal Life Insurance Quotes

Universal life insurance is a hybrid permanent life policy that was introduced in the late 1980s. Universal life insurance offers the pros and cons of permanent life insurance, such as building cash value with the potential for greater investment returns, yet can be purchased at cheaper rates than whole life insurance. Since universal life insurance was first offered by insurance companies, many different types of universal life insurance policies have been developed, from single, fixed or flexible premiums plans to guaranteed or variable policies, each with its own advantages and disadvantages.

When consumers compare universal life insurance quotes, it is important to understand the features of each universal life policy as well as the rates, coverage, and life insurance company. Enter your zip code now to get a universal life insurance quote and find out if a universal life policy is affordable for your budget.

Guaranteed Universal Life Insurance

There are actually two different types of guaranteed universal life policies, one that guarantees a minimum rate of return on the cash value investment and one that guarantees the policy will not lapse even if the cash value falls to zero due to investment failures. In previous universal life insurance policies, if the cash value of the investment account was zero or less due to investment losses, the policy lapsed and the insured person had to seek new life insurance. Guaranteed universal life insurance with no-lapse riders will not be as cheap as standard universal life insurance quotes without these options.

Variable Universal Life Insurance

With most universal life insurance, the life insurance carrier makes all the investment decisions, but with variable universal life insurance, the policyholder can choose how he or she wants the cash value invested. Policyholders are given a choice of several options, similar to mutual funds and can choose to place all their equity in a single investment or divide the cash value between several investments. Variable universal life insurance is a good choice for individuals with knowledge and experience in investments and can be a great example of how life insurance as an investment can yield strong returns or losses depending on the market’s performance.

Equity Indexed Universal Life Insurance

Introduced 9 years ago, equity indexed universal life insurance is considered by most financial experts to be a good choice for retirement investments. The equity (cash value) investment of the policy is tied to major financial indexes like the Standard & Poor’s or NASDAQ. Investing in a life insurance policy has tax advantages since profits are tax deferred until they are withdrawn for the policy. Consumers will find it wise to compare universal life insurance terms, benchmarks, and past performance as well as universal life insurance quotes since equity indexed policies may vary between different insurance companies.

Other Universal Life Insurance Policies

There are now two death benefit options for universal life insurance. One type of policy pays only the death benefit when the insured dies and the other pays the death benefit plus the accrued cash value in the policy. Those who are using universal life insurance as a retirement investment may wish to choose the second option since the cash value may be substantial in a policy held over the long term. Universal life insurance quotes for the first option will be cheaper and more affordable, but policies that payout both the death benefit and cash value will most likely overcome that deficit and be valuable.

Universal Life Insurance Quotes

MyLifeInsuranceQuotes101 offers helpful articles to educate consumers on the different types of life insurance. We also provide free, instant life insurance quotes from multiple top ranked insurance companies so individuals can compare the rates of different life insurance policies and companies. Consumers should understand the terms and conditions of the universal life policies they purchase, and the beginning of that research starts with requesting universal life insurance quotes.

By getting life insurance quotes online, you are able to review multiple policies and carriers offering universal life insurance instantly, comparing premiums and death benefits to find the best, cheap life insurance for your needs.