Thinking about Universal Life Insurance is but aren’t exactly sure what it is?
It can be easy to confuse universal life insurance with other types of life insurance. After reading this article, you’ll know what universal life insurance is as well as its pros and cons.
What Is Universal Life Insurance?
Universal Life Insurance (ULI) is a life insurance policy that provides lifelong coverage for its policy holders. It is a permanent insurance that provides coverage as long as your premiums are paid. Unlike whole life insurance, ULI is flexible when it comes to monthly premiums.
Aside from the death benefit, policy holders also get a cash value component. This means that a portion of your monthly premium goes to become part of the cash value.
You, as the policyholder, have investment choices for how the policy’s cash value is invested/how it’s used. You can use the cash value as a loan collateral, for your premium payments, or as surrender value when you decide you no longer want the policy.
Unlike whole life insurance, ULI is flexible when it comes to monthly premiums.
There are also variable and indexed universal life insurance which gives the policy owners options on how to invest the policy’s cash value.
What Makes Universal Life Insurance Different from Whole Life Insurance?
Whole Life Insurance and Universal Life Insurance may sound similar. And, in some ways they are. But they have two major differences:
- Cash Value Interest Rates
- Monthly Premium
In ULI, the cash value has a guaranteed minimum interest rate. But that rate can be higher depending on the market. On the other hand, WLI has a guaranteed flat interest rate.
When it comes to premiums, ULI has a wide range of options, and the minimum can increase over time. On the other hand, WLI has the same premium level for life of policy.
Different Types of Universal Life Insurance
There are also different types of universal life insurance. Check them out below.
- Traditional Universal Life Insurance
- Indexed Universal Life Insurance or IUL
IUL is considered the safer option of the two. This is because the traditional UL model may be too risky. It depends highly on the stock market, and due to its fluctuations, it may pose a lot of risks.
An Indexed Life Insurance gives you a great opportunity to build savings with variable interest rates. It’s also flexible and has different cash out options.
Universal Life Insurance Pros
- Helps you build savings with interest rates
- Provides cash value
- Different cash out options
- Death benefits
- Can be used as investment savings
Universal Life Insurance Cons
- Monthly premiums may change
- Unstable stock market