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Universal Life Insurance, or UL, is a type of permanent life insurance coverage that includes both a death benefit and a cash value component. While this may sound similar to whole life insurance, it is actually much more flexible.
One reason for this is because the policy holder is able, within certain guidelines, to move funds between the insurance and the cash components of the policy. They may also be able to change the timing of when their premium is due based on their life’s changing needs.
In addition, unlike with a whole life policy, a UL policy will allow the policy holder to use the interest from the cash value savings to actually help in paying the policy’s premiums.
Guaranteed Universal Life, or GUL, is a type of permanent life insurance protection that provides a guarantee on the death benefit proceeds. With this form of coverage, your death benefit will not terminate – even if there is not a sufficient amount of cash value to support it in the policy. Because a regular UL policy needs to have a sufficient amount of cash in order to remain in force, the GUL can allow a plan that would otherwise lapse to stay intact. This way, the beneficiary will be able to obtain the death benefit proceeds that he or she needs in case of the unexpected.
Certainly, flexibility is one of the biggest advantages to owning a UL policy. By allowing policy holders to pay a higher or lower premium can also help during certain times in one’s life.
Having permanent coverage is also a plus, as the death benefit will remain in force, regardless of a policy holder’s increasing age or health condition.
If the policy holder is unable to pay the premium at certain times, it may be taken from the cash component. This can be a convenient way to keep the coverage in force.
There are several different options for how the cash value component of the policy can be structured, depending on the type of UL policy that is chosen.
By allowing tax-deferred growth, the value of the cash component can literally grow and compound exponentially over time.
When compared to a term policy, UL will be more expensive. This is due in large part to the fees and administration costs, as well as the cash value.
Unlike with a whole life insurance policy, UL plans will require that you more closely monitor the cash value portion of the policy.
If cash is borrowed from the policy, it should be repaid. Otherwise, interest will be charged by the insurer. In addition, the amount of unpaid balance will oftentimes be charged against the death benefit that is paid out to the policy’s beneficiary.
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