Universal Life Insurance
Like whole life insurance, universal life insurance lasts until you die, rather than lasting for a specific term. It also places some of your premiums into a savings account, allowing the policy to accrue cash value. Like any insurance policy, it pays out a death benefit to a pre-chosen beneficiary when you die.
There are several types of universal life insurance, and these policies can get a little bit complicated. It’s important to work with your insurance agent to ensure you’re choosing the policy that can meet your goals.
What are the types of universal life insurance?
There are three types: indexed universal life, guaranteed universal life, and variable universal life. (We do not offer variable universal life)
If you are on an indexed plan, the cash value of your policy will earn interest based on how the stock market is doing. This will be based on one of several available market indexes. The policy may be subject to both an interest rate floor and an interest rate cap. Your premiums may change as the index shifts.
Guaranteed universal life insurance keep your premiums stable, and set interest rates on the cash value of the policy from the moment the policy begins. These will hold the smallest amount of cash value. Most of your money will go into paying for the insurance policy itself.
The final type is variable universal life. This lets you invest the cash into a mutual fund instead of into a savings account.
What is the difference between whole life insurance and universal life insurance?
The first difference is in how the policy treats its cash value.
A whole life policy allows you to borrow, at interest, against the cash value of the policy. When you die, the cash value and your death benefit get paid out to the beneficiaries.
A universal life policy treats the cash value like a low interest savings account. You can withdraw the money and use it. Yet the value will be subtracted from your death benefit, and your beneficiaries won’t receive any money other than the death benefit. The cash value you’ve built up then reverts back to the insurance company.
The second difference is in the premiums. With a universal policy you have more say in how much money goes into the cash side of your policy.
What are the benefits of a universal life insurance policy?
The biggest benefit of this policy is that it’s highly flexible. For example, if you’re having trouble making premium payments you can reduce them, perhaps in exchange for less of a cash value to your policy or for a smaller death benefit. There are other aspects of your policy that may also be changed as well, such as adjusting the death benefit to improve the cash value.
As a result, these policies can do a better job of keeping up with changing financial realities than whole life policies, and tend to be less expensive.
Interested in universal life insurance?
Not sure whether universal life insurance is right for you? Get answers now. Call (504) 228-7184 to get started.