What Is Universal Life Insurance?

Universal life insurance was developed in the late 1980s to make permanent life insurance affordable, and more accessible to consumers. Universal life insurance policies have cheaper rates than permanent whole life insurance, but are not as affordable as term life insurance. Like whole life insurance, universal life insurance does accrue a cash value that can be used as a financial asset, down payment for a home, or a low interest loan from the life insurance company.

Whole life insurance usually guarantees a return of investment on the cash value of the policy, but universal life insurance is invested in riskier financial instruments like stocks and bonds and usually does not guarantee the policyholder’s equity in the policy. However, due to greater risk, universal life insurance also can yield much higher returns if the stock market performs well, and as an investment, can provide diversification and wealth for a family looking to build a nest egg for retirement.

To determine if universal life insurance is the best type of life insurance for your needs, continue learning more about the policy and then get life insurance quotes to compare rates, policies, and insurance companies to find the best, yet affordable universal life policy available.

Universal Life Insurance Can Lapse

Universal life insurance is considered permanent life insurance, but it can lapse if the cash value of the policy reaches zero due to investment failures. The cash value of the policy is created by diverting some of your life insurance premium into an investment account. The universal life insurance death benefit is not fixed as it is in term and whole life insurance policies, but is tied to the cash value in the policy and the success of investments. Survivors may receive less than the policy’s face value if the insured person dies. However, this additional risk a policyholder faces is compensated by the fact that universal life insurance rates are cheaper and more affordable than whole life insurance, yet provide a cash value and potential returns that term life insurance does not.

Additionally, consumers may add a no-lapse life insurance rider to a universal life policy to prevent the policy from lapsing or getting canceled by the carrier. A no-lapse rider will cost extra but can provide peace of mind that your universal life insurance policy will not lapse, and you will not be forced to reapply for another policy or be subjected to another medical exam.

Flexible Premiums

Both whole and term life insurance have fixed life insurance rates while the policy is in effect. Universal life insurance, however, has minimum and maximum premiums that allow policyholders to decide how much they want to invest in the cash value. By paying the minimum rate, none of your premium is invested in the cash value, while policyholders who choose to pay the maximum rate can add more money to the universal life cash value and invest to grow their money.

If the policyholder is unable to make a premium payment due to income fluctuations or changing financial needs, the minimum payment may be deducted from the cash value account. Minimum life insurance rates on universal policies can be raised by the company during the policy term.

Risk To The Policyholder

Investment in whole life insurance poses virtually no risk to the policyholder since the rate of return on investment is guaranteed. While the riskier, more volatile investments of universal life insurance have the potential for greater returns, universal life insurance as an investment also has the potential for loss. Fees associated with the buying and selling of stocks, bonds, commodities, and foreign currencies apply to these investment accounts and can erode the equity in the policy if returns are lower than projected.

The risk inherent with universal life insurance as an investment is one of the main reasons universal life insurance rates are more affordable than whole life insurance. Getting online quotes to compare life insurance rates can show you just how cheap life insurance can be, regardless of the type of policy you choose to buy.

Tax Advantages

Universal life insurance has many pros and cons, but both whole and universal life insurance offer tax advantages since the returns on money invested in a life insurance account are tax deferred until withdrawn. The death benefits of life insurance policies are not taxable, and can be used in financial planning to cover the cost of estate taxes for survivors. Universal life insurance equity can used as collateral for low interest loans which do not have to be repaid and are not subject to income tax, which is why some financial advisors recommend universal life insurance for retirement planning.

Life Insurance Rates

Universal life insurance is a permanent life insurance policy with an investment account. Like all forms of life insurance, universal life insurance has its own pros and cons, and each individual, parent, or senior must decide whether this type of life insurance meets their needs and budget.

To help determine whether universal life insurance is the best life insurance for you and your family, MyLifeInsuranceQuotes101 offers free, instant life insurance quotes for all types of life insurance policies so consumers can compare prices, coverage, and insurance companies to see if universal life insurance offers both the right coverage and investment potential they desire.

By entering your zip code, consumers can pick a policy, death benefit, and life insurance company to get online quotes from and find the cheapest life insurance rates carriers have to offer. Start a life insurance quote now and find the best rates for you.