Universal Life Insurance | How Does it Work & How Much Does It Cost?
Unlike its Term Life insurance counterpart, Universal Life insurance is permanent insurance that will never terminate, leaving you without coverage for your dependents. Let’s jump in and explain the product and see if it would be a good fit for you.
If you plan to purchase life insurance, you should be aware of the primary forms of life insurance and how they work. You must research the concept of needing life insurance for a limited time or the rest of your life.
Table of Contents
- What Is Universal Life Insurance?
- What Are Cash Value vs. No Cash Value Options?
- What Types of Universal Life Insurance Can I Apply For?
- Who Would Benefit From Universal Life?
- When Is the Best Time to Apply for Universal Life?
- Can I Combine Term & Universal Life Insurance?
- Where Is the Best Place to Buy Universal Life Insurance?
- How Can I Make Sure I Get the Lowest Rates Possible?
- If I Smoke Marijuana, Will It Affect My Universal Life Rates?
- Can I Save Time by Applying Over the Telephone?
- What Is a Medical Pre-Screen and How Does It Work?
- In Conclusion
Most people have never even heard of Universal Life insurance, much less understand how this policy design works. Universal Life Insurance is a permanent plan designed, unlike Term Life Insurance, which is temporary. The main difference between terms and these products is that universal life policies offer flexible premiums and choose different levels of coverage.
These policies give you more freedom to design flexible premium payments. For example, you can pay more or less a premium each year. You can even skip a premium for a year or more if need be without having the policy terminated as term insurance would.
These products are permanent policies that will not expire as long as you pay the minimum premium. Universal Life is based on building a cash value, and the financial performance will depend on investments that the life insurance companies work with. After the first few years of paying premiums, you could even experience the policy staying active with no additional payments as long as the cash value is sufficient to pay for the policy’s protection.
A fixed universal life policy will incorporate projected and guaranteed interest rates to protect you from poor economic times. Policyholders even receive an annual report explaining the policy’s current status and how it performs for them. For example, it will show a breakdown of your death benefit, the current cash value, surrender value, and how much life insurance you have in force.
Most people purchase term life insurance because it is cheaper than universal life. However, you will also find that most people outlive the term period of their policy and then have no life insurance when they still need it.
You will need to make this important decision because there are two versions of universal life. Therefore, if you consider purchasing a universal life policy, one of your first and most important decisions will be what version of these policies you should apply for. Here is a simple comparison of what I am referring to.
Cash Value Policies – The cash value policies have HIGHER PREMIUMS as a negative side effect. I do not recommend this type because the interest rate is not high enough to warrant higher premiums even though you will build a cash value. You also have to consider that universal life policies cost more than term policies.
When you add a cash version to the policy, it will raise the premium all that much more. So most people would say these policies are not cost-effective, and they can’t afford the premium and would instead go the term life insurance route.
No Cash Value Policies – If you choose this policy option, you will have lower premiums, and you will still enjoy the fact that you have life insurance protection for the rest of your life. In addition, this will eliminate the worries of outliving a term policy when you still need life insurance.
This happens to a considerable percentage of term insurance owners. Many of them purchase too short a term period and outlive the policy. If they later decide to buy a replacement policy, they will find the new policy will cost much more because they are older. Also, health conditions may prohibit the purchase of new life insurance.
Interest Rates Can Vary Between Carriers & Economic Times
If you choose a policy that generates a cash value, you will find that the interest rate will vary slightly between one carrier and another. You will generally begin the policy with a designated interest rate stated in the policy if your guaranteed interest rate goes up because of good economic times.
The additional interest can be credited to you, making the policy grow. If this happens, the universal life policy can perform well. Years ago, the interest rate used to be higher, which was similar to CDs.
Universal Life Insurance May Be a Good Option for You if You Are Interested In the following:
- The ability to adjust your premiums from year to year.
- An actual cash value you can borrow from while you are still alive.
- Peace of mind with permanent, never-ending life insurance protection.
The E.F. Hutton life insurance company introduced and sold its first universal life insurance policy, the first new design in more than 100 years. The flexible premium feature made it a popular plan designed virtually overnight.
Do You Need the Cash Build-Up That Universal Life Offers?
No, not at all! Some of the newer universal life plans can eliminate cash value. This would mean no loan options and no interest rates. This also means a significantly lower premium straight across the board. Cash value adds to the cost and can make the annual premium cost too much, making the plan too costly to purchase, especially if you need a high face amount. Protective Life has an excellent universal life policy, and you can choose the version with no cash value and save money.
Choosing a Universal life policy with no cash value will considerably reduce your premiums, making this permanent product much more cost-effective!
Traditional Universal Life:
The traditional version is the most common form, and most people apply for it. These policies accumulate cash value slower than the other types, but they are considered much safer because they accumulate in money market-type accounts.
Indexed Universal Life:
Indexed UL policies are invested into funds that work off the S&P 500. The features and options of indexed universal Life are similar to those of a traditional universal life policy. These policies are usually used in conjunction with other investment vehicles in a long-term portfolio.
Variable Universal Life:
Variable universal life type insurance policies have some options and physical features as indexed universal life insurance policies do. They connect the cash value account in the policy to real investment funds that trade in different types of equities and bonds. The risk is much greater, but the cash value can multiply fast. The biggest downside is if there is a turn for the worst in the market, the value of your cash build-up could be reduced.
Guaranteed Universal Life:
Guaranteed versions of these policies are very similar to term life insurance plan designs. They usually do not have any cash value or flexibility in paying premiums. The premiums for these kinds of policies are much more affordable. I recommend having no cash value and keeping the policy’s cost down.
The best candidates for Universal Life insurance would be young people who usually outlive Term life insurance. For example, if a 25-year-old male purchased a 30-year Term policy, the policy would expire at age 55. Thirty years is the usual maximum time limit for a term plan; therefore, heHe would, in many cases, need life insurance far past the age of only 55 years.
The other consumer who would benefit from a universal product would be the individual wanting life insurance for the rest of their lives. Many want their life insurance to protect their family members for their complete lifespan and not ever terminate. Protective Life and Banner Life have great universal life products and very low universal life insurance quotes.
Universal Life will be your best choice if you want life insurance for the rest of your life instead of only a specific period.
Combining a term and a universal life policy can create the perfect life insurance portfolio. I consider this to be the best of both worlds by far. An individual does not have to make a specific choice of which plan to buy. Having a combination of the two is fantastic and makes a perfect combination. In addition, low-cost term life insurance can cover the most financially volatile times.
The universal life policy can be used to continue after the term expires. Usually, a much smaller face amount can be used for universal life. This gives the policyholder life insurance protection and the money-saving feature of using terms.
As with any life insurance product, the best time is as soon as possible. Universal life insurance quotes go up every year as you get older. Waiting to buy your new life insurance plan will always cost you higher premiums. Time is money when buying life insurance. Apply as soon as possible to lock in your rates before you get any older than you are.
Also, keep in mind that health conditions start to develop as the years go by. This happens to everyone, with no exceptions to the rule. Anytime you develop a health condition, especially a serious one, your life insurance rates will be impacted when you apply. If your health condition is severe, your application may be declined.
The best place would always be through an independent insurance agency such as ourselves. Independent insurance agents represent all significant companies, unlike captive agents like State Farm or Country Financial. Also, the independent agents (also known as brokers) know all the underwriting requirements involved, so you apply with the most applicable company. Using the most applicable insurer is vital to getting the best rates. We have been selling universal life since its inception.
Getting the lowest rates possible will depend quite a bit on your agent’s performance and what companies he represents. You can instantly review the best universal life insurance quotes on our quote engine. We use over 40 top-rated life insurance companies to ensure we provide our applicants with the lowest rates at any time.
You can run our website’s quoting system to get a head start and see who has the lowest rates. You can compare all the best universal life insurance quotes.
If you smoke marijuana for recreational or medical reasons, that will not be a problem in most cases. We use many top-rated companies to allow you to smoke marijuana without placing you in a smoker rate classification. The only exception would be for an application that is a heavy smoker who uses it every day of the week.
Applying our SnapApp application system over the telephone will make applying for universal life insurance simple and easy. A telephone application will take about twenty minutes, and you must listen to a series of questions and then answer them. There is no other way that is this simple to apply for life insurance.
A medical pre-screen is just an option and is very simple and takes about 10 minutes to complete. All it amounts to is having the applicant answer a few questions if they have any medical conditions, a dangerous occupation, or a hazardous sport or hobby. This information is vital to your agent, who will decide what life insurance company to apply with.
A medical pre-screen will not be recommended if you don’t have any medical conditions, hazardous occupations, or dangerous sports. However, if you have any of these conditions, a pre-screen can save you money by applying with the most applicable life insurance company.
After reading this post, I am sure you have a much better understanding of what Universal Life insurance is and the advantages it offers. However, you must have many questions, so don’t hesitate to contact us seven days a week. Feel free to use our quote engine to compare all the best universal life insurance quotes.
All the best,
If you have any questions about universal life insurance, contact us today for all the help you need at no cost or obligation. We are brokers and work for our clients, not the insurers. We will help you get approved for the best policy with the lowest rates. You can also set up a time at your convenience to talk.