What is Universal Life Insurance?

Universal life insurance brings the best of both whole and term life insurance under one plan. It is a cash accruing, annually renewable term policy. The hybrid nature of the policy allows for flexible premiums and adjustable death benefits. If planned correctly and given the proper crediting method, these plans are often used to accrue large amounts of tax-free cash value. In recent times these cash benefits have been heavily marketed as a way to self-bank or to generate wealth.

How much does Universal Life Insurance cost?

Like a term life policy the premium due on a universal life plan will be the exact cost calculated by the company for that type of plan and amount of benefit, but only for a duration of one year. This is called the cost of insurance. Each year this cost will be re-calculated with a new, and higher, cost of coverage to be charged. If the client pays a premium in excess of the cost, the difference will be deposited in a cash value account that is credited interest just like a whole life policy. If you would like to explore specific pricing from some of the top plans, use our shop now button to begin self-generating quotes. You may also view who is offering some of the cheapest universal life insurance plans here.

What is Universal Life used for?

Because of the ability of these plans to generate large sums of cash value, and also be priced as a term policy, they are used in a variety of ways. We find many of those who need the protection term offers but seek to get more in return for their premium contributions see this plan as a great upgrade (see term vs IUL here). Companies see this trend as well and usually have conversion provisions within the contract to allow a smooth transition between the two products. The higher cost of traditional whole life and the lack of flexibility in its nature also creates a market for those who seek a change from whole life plans. Naturally, because this policy incorporates features from both types of policies, we see the plan being implemented for all the same reasons. A new market however has emerged where people seeking a alternative investment for their money seem to be attracted to these types of plans more and more. We have implemented universal life plans within 401k’s, estate plans, business buy-sell agreements, and key-man policies. When we present policies to initial clients, universal life plans are almost always top of our suggestion list.

Pros and Cons of Universal Life?

Advantages of Universal Life:

The number one advantage of this plan is the pricing and flexible nature of these products. These plans allow for easy adjustment of the death benefit and premiums throughout the policies contract. This allows for life changes, that are all to sure to occur as clients age, to have a smaller impact on the coverage. The interest crediting methods of the cash value; fixed, indexed and variable, are almost always better options than the small fixed rates of traditional whole life.

Disadvantages of Universal Life:

The hybrid nature of a Universal Life policy can be somewhat hard to understand for the average client. This lack of comprehension can lead to misunderstandings that can be devastating to the long term viability of the coverage. In our experience, people often falsely believe that the costs stay flat and as long a they pay their originally planned premium it can not lapse. We have also seen those who believed the illustrated cash values projected at the outset of the plan were not just projections but guarantees. As with most negative perceptions of this industry, a knowledgeable and ethical advisor can avoid all these pitfalls by properly communicating and planning the policy with the client.