What is universal life insurance and how does it work? Read this step by step guide to understand what UL is and will it be a good choice for you to consider.
What is the difference between term and universal life?
Unlike its term life counterpart, universal life insurance is permanent insurance which will never terminate leaving you without coverage for your dependents.
Let’s jump in and explain what this product is all about and see if it would it be a good fit for you. If you are planning on purchasing life insurance, you should be aware of the basic forms of life insurance and how they work. If you need life insurance for just a limited amount of time or for the rest of your life, you need to do your research.
How does it work?
First of all, low cost term life insurance is great, but you have to remember that it is a temporary life insurance product. Universal life policies offer a form of flexible premiums. This allows you to adjust how much you can pay each year by examining the policy’s cash value. Just keep in mind that you will still have to pay a minimum amount to keep the policy active. In the beginning of the policy years, you may have to wait until enough cash value is built up. If it is built up enough, you could even periodically even skip a premium. If you do not use any of the cash value in the form of a withdrawal. The cash value will just grow and grow especially if you have a good interest rate.
Interest rates can vary between one insurer to another
You will normally begin the policy with a designated interest rate that is stated in the policy. If your guaranteed interest rate goes up because of good economic times. The additional interest can be credited back to you which can really make the policy grow. If this actually happens, the universal life policy can outperform a whole life insurance policy. Years ago the interest rate used to be higher which was similar to CDs.
Universal life insurance might be a good option for you if you are looking for:
- The ability to adjust your premiums from year to year.
- An actual cash value you can borrow from while you are still alive.
- The peace of mind having permanent never ending life insurance protection.
Do I really need the cash build-up that universal life offers?
Some of the new universal life plans have an option for no cash value. This would mean no loan options and no interest rates. This means a lower premium straight across the board. Having a cash value adds to the cost and can make the annual premium cost too much making the plan impractical to purchase.
Choosing a universal life policy with no cash value option will reduce your premiums considerably making this permanent product much more cost effective.
Do universal life plans cost more that term?
The answer to this question concerning higher costs is definitely yes. The only negative side effect to universal plan designs is the simple fact they cost more money. They can easily cost more that double the price of term. How old you are when you apply is going to make a difference when universal life begins to get too expensive to afford. Many people wait until they are in their 50s and 60s and find that most life insurance will become too expensive for them to afford. If you apply for coverage when you are young such as in your 20s or 30s, you will pay a fraction of what the older people do. You can use our free quoting system to review universal life insurance quotes.
The main types of universal life
- Traditional Universal Life – The traditional version is the most common form and are the ones most people apply for. These types of policies accumulate cash value slower than the other types do but they are considered much safer because the cash value accumulates in money market type account.
- 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 type portfolio.
- Variable Universal Life – Variable universal life type insurance policies have some options and physical features of those 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 grow quickly. The biggest downside is if there is a turn for the worst in the market, the value of your cash build-up could be brutal.
- 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.
Who would benefit from universal life?
The best candidates for Universal Life insurance would be young people that would normally 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 term plans. He would in many cases need life insurance far past the age of only 55 years.
The other type of consumer who would benefit from a universal product would be simply the individual wanting life insurance for the rest of his life. Many people want their life insurance to protect their family members for their complete lifespan and not ever terminate. Protective Life and Banner Life have some great universal life products and very low universal life insurance quotes.
Whole life vs. universal life
In the world of permanent life insurance, we have two major types, whole life and universal. Trying to explain the difference between the two can be a little confusing because they are similar in a few ways. Both of these products are permanent forms of life insurance that pay a death benefit to your beneficiary. Both can offer a cash value but where do they go from there? Whole life insurance does not offer flexible premiums but does offer a greater platform for generating a cash value. On todays standards, most people are more concerned about the life insurance protection than cash build-ups. That is what life insurance is all about, a death benefit upon the demise of the insured, plain and simple.
Most consumers purchase term life and are never even informed about permanent insurance being available
When most consumers decide to purchase life insurance, they never consider anything else. Most of the times is because they were never even informed that a permanent form of life insurance even exists. This can lead to trouble if they actually need life insurance for the rest of their lives and were talked into a short term plan design. The negative side of this is realizing years later that they still need life insurance but it is now too late in the game.
It can be too late because their health has negatively changed and they no longer would be able to purchase life insurance. Just one serious medical condition can create a life insurance purchasing nightmare. Also, at an older age they might not be able to afford a new policy. These two scenarios happen on a daily basis to people that failed to design a good life insurance portfolio. Many times it is also their agents fault for not properly guiding them.
Combining term and universal life
This is what I consider to be the best of both worlds by far. An individual does not have to make a specific choice of which plan design to buy. Having a combination of the two is fantastic and makes a perfect combination. Low cost Term life insurance can be used to cover the most financially volatile times. The universal life can be used to continue on after the term expires. Usually a much smaller face amount can be used for the universal life. This gives the individual, life insurance protection forever and the money saving feature of using term.
When is the best time to apply for universal life insurance?
As with any life insurance product, the best time is as soon as possible. The universal life insurance quotes go up every year as you get older. Waiting to buy your new life insurance plan will just cost you more money in premiums. Time is money when buying life insurance. Apply as soon as you can so you can lock your rates it before you get any older than you are right now.
Where is the best place to buy universal life insurance?
The best place is always going to be through an independent insurance agency such as BestChoiceLifeInsurance. The independent insurance agents represent all the major companies unlike captive agents like State Farm or Allstate. Also, the independent agents (also known as brokers) know all the underwriting requirements involved so you apply with the most applicable company. If you have any medical issues to be concerned with, your agent can run a quick medical pre-screen so there are no surprises after you apply.
How can I make sure I get the lowest rates possible?
Getting the lowest rates possible will depend quite a bit on your agents performance and what companies he represents. You can instantly review the best universal life insurance quotes on our quote engine. We use over 40 of the top rated life insurance companies and make sure we provide our applicants with the lowest rates every time. You can run our websites free quoting system to get a head start and see who has the lowest rates. We guarantee the lowest rates because our reputation rides on it.
There you have it!
After reading this post, I am sure you have a much better understanding of universal life and the advantages it offers. You must have a number of questions to ask so don’t hesitate to contact us 7 days a week. There is no cost or obligation for our help. You can call us toll free at 800-897-5699 and we will be happy to answer all your questions.
All the best,