Universal Life Comparison

Universal life insurance is one of the main types of permanent insurance. Variable universal life and whole life insurance are the other two. Term life insurance sits in a category all-its-own, but it is the most popular type. Universal Life insurance takes the benefits of Whole Life and makes them much more flexible. UL’s allows the insured to change death benefits, as well as premiums, and both are still guaranteed for life as long as premiums are met. Furthermore, let’s compare universal life up against variable universal, whole and term life. Universal & Whole Life insurance These two are alike in the following ways: they’re permanent; they’re meant for consumers who need a lot of life insurance and like the idea of a cash value, and the cash value is something that is invested and accrues interest. The difference in universal and whole life is flexibility. The latter is much less flexible, yet often much less riskier. On the other hand, universal life is more flexible in terms of monthly/yearly premiums and death benefits. The main similarity between whole and universal life is, of course, the savings component (cash value). However, Universal Life allows for the premium to be adjusted, as well as the death benefit. The death benefit can be decreased or increased; the latter is usually dependent upon the insurer’s approval and sometimes even a medical screening. Either way, as life’s needs change—the amount you contribute towards premiums (death benefit) and the cash value (savings) can be adjusted as needed, generally speaking. Universal & Variable Universal Life Variable Life insurance is very similar to its basic cousin. The difference is in savings options. Normally, the cash value attached to a UL (Universal Life) is linked to a stock market index or bond. VUL’s, on the other hand, can be tied to additional financial vehicles—like mutual funds, money market funds, and stocks. VUL (Variable Universal Life) can be as beneficial as it can be risky. The death benefit is generally locked-in, but it isn’t 100% guaranteed. If the cash value’s investments raises or drops significantly—in relation to the set interest rate (usually about 4%)—the death benefit amount will be adjusted accordingly. In other words, the death benefit could go up and it could go down. Universal Life versus Term Life It’s been said that Universal Life insurance is the most similar type of life insurance product to Term Life. Naturally, one of the only differences is the savings component that comes with the former. Universal Life is also considered far more long-term, because Term Life is rarely sold in Terms over 30 years. Universal Life puts excess money in an interest-bearing account, and the returns are dependent mainly on the stocks and/or bonds that they are linked to. What should I buy? The majority of younger people (i.e. <40) prefer Term Life over the preceding forms of permanent life insurance. Why? They find its terms much more flexible, the premiums lower, and do not necessarily want a savings vehicle that may determine—for better or worse—the death benefit. They just want a life insurance policy that doesn’t generally require an “excessive” payment that generates a cash value. rnThe downside to Term Life is that while premiums start out very low for most people, they typically increase as the years roll-by. And while Term Life policies are usually renewable, they may be subject to health exams, significant fees, and higher premiums. This is what makes Universal Life policies more attractive to people looking for a lifelong solution that cannot be canceled and does not have to be subject to renewal conditions.