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.
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.
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.
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.
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.