Universal Life Insurance: What to know

Universal Life Insurance is a flexible, permanent life insurance policy that gives you more control over your monthly premiums.

• What Is Universal Life Insurance?

  

  Universal life insurance offers lifelong coverage and an opportunity for the policyholder to save and grow their money over time. Policyholders are also free to change their premium payments and death benefit amounts as their financial situations change.

  Universal life insurance policies have a unique structure that allows policyholders to increase or decrease how much they pay toward their monthly premiums. If you decrease your monthly premium payment, the difference will be taken from the cash value of the policy.

  The cash value of the policy earns interest, and the cash value is available to the policyholder to pay their monthly premiums, withdraw as cash, and borrow with a loan.

  There are three types of universal life insurance: Guaranteed Universal Life Insurance, Indexed Universal Life Insurance, and Variable Universal Life Insurance.

  A Guaranteed policy ensures a death payout and stable premium payments. An Indexed policy offers the opportunity to earn stock market gains. A Variable policy invests in mutual funds to grow or shrink the policy’s cash value.

• How Does Universal Life Insurance Work?

  A policyholder can decide how much they pay each month for their life insurance.

  Part of the premium helps grow the cash value of the policy. The money saved in the policy earns interest through investments, which means the value is subject to economic conditions. Most insurers set a floor that prevents policyholders from losing money, and a cap on the gains it can accumulate.

  

• Who is Universal Life Insurance for?

  

  Universal life insurance is recommended for people who earn high salaries and want flexible monthly costs as they grow a modest nest egg with investments that they don’t manage directly. It can also help high earners avoid entering a higher tax bracket.

  Since there are usually limits on investment returns, a universal life insurance policy may not be ideal for people who are hoping to maximize their future savings. However, the cash value is tax-deferred, so you be able to save on taxes you would pay by investing in stocks directly.

• How Much Does Universal Life Insurance Cost?

  Industry data show that universal life insurance has higher premiums than many other types of life insurance.

  An average male between 25-35 pays $65-$103 per month while the average female of the same age pays $54-$83. Premiums go up as policyholders age. An average male between 55-65 pays $244-$427 per month and a female at the same age pays $207-$337 per month.

  

  25-35 Years Old

  Higher Premiums

  $65 - $103 per month

  

  25-35 Years Old

  Higher Premiums

  $54 - $83 per month

  

  55-65 Years Old

  Higher Premiums

  $244 - $427 per month

  

  55-65 Years Old

  Higher Premiums

  $207 - $337 per month

• Universal Life Insurance vs. Whole Life Insurance

  Universal life insurance and whole love insurance both offer lifelong coverage and savings opportunities, but universal life insurance makes it easier for the policyholder to adjust their monthly payments and their final death payout.

  Whole life insurance policies have a set monthly premium and a guaranteed death benefit at are not likely to change.

  Each type of policy allows the holder to borrow money from the cash value of the plan, which can offer more financial security later in life.

  Sources

  https://www.investopedia.com/terms/u/universallife.asp
  https://www.policygenius.com/life-insurance/universal-life-insurance/
  https://smartasset.com/life-insurance/universal-life-insurance-quotes