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Discover universal life insurance.
Learn about the different types of life insurance to find the coverage that works best for you.
What is universal life insurance?
You may have heard of universal life insurance, but what exactly does this coverage type offer? At SelectQuote, we can help you understand the ins and outs of universal life insurance and how it differs from whole life insurance and other coverage types.Universal life insurance is a form of permanent life insurance, meaning it’s designed to last your entire lifetime. The policy can also accrue cash value, which earns interest as you pay your premiums. You can use this cash value as a savings account, to supplement retirement income, and in some cases, to pay your premiums. For universal life insurance policies, the interest rate earned on the cash value is subject to change, as compared to whole life insurance, where the interest rate is fixed.
Understanding the Basics of Universal Life Insurance
Universal life insurance coverage can last for your entire life. This means when you purchase your policy, you’ll remain covered as long as the premiums are paid. Similar to a whole life insurance policy, a portion of your monthly premium on your universal life insurance may go toward a cash value account. For this particular type of life insurance policy, the cash value earns a variable interest that can eventually be used to pay for some of your monthly premium. It can also be used as a savings account or borrowed from to pay for expenses like retirement or a child’s education. Some types of universal life insurance will build more cash value than others, so be sure to review the details of your policy to get a better understanding of your cash value options. One downside of universal life insurance is the cost. Premiums are typically higher than the more popular life insurance option, term life insurance. There can be economic risks associated with universal life insurance when it comes to value, making it one of the more complex insurance products to understand and use.
Types of Universal Life Insurance
When exploring universal life insurance, you’ll need to familiarize yourself with the different policy types within this category. There are two main types of universal life insurance: indexed universal life insurance and guaranteed universal life insurance. The main difference between the two is how the cash value component works.
1. Indexed universal insurance’s cash value is tied to the performance of a specific index. Each insurance provider typically has its own selection of available indices. This means an indexed universal policy has the potential for high returns, but can also be riskier.
2. Guaranteed universal life insurance won’t lapse if the cash value is zero. Guaranteed universal typically has one of the lowest price tags for permanent coverage given the no or low cash value component.
Life Insurance Retirement Plan
Another benefit of some universal life insurance policies is the ability to use them as a retirement planning tool. These policies—known as Life Insurance Retirement Plans (LIRPs)—allow you to overpay your premiums and borrow against or withdraw the cash value of your policy as regular income in retirement. A LIRP can be an effective retirement strategy if you’re maxed out on traditional retirement contributions or need to provide long-term or permanent care for dependents after you die.
What are the key advantages of universal life insurance?
Lifetime Coverage: Universal life insurance and whole life insurance both fall under the category of permanent life insurance, which means they both provide lifetime coverage as long as premiums are paid. Cost-wise, universal life insurance can potentially be less expensive than whole life. Having lifetime protection will provide peace of mind that your coverage eligibility will not be affected by changes to your health and lifestyle as you age.
Flexibility: A universal life policy is one of the most flexible types of life insurance. Although premiums tend to be high, you get to decide what premium you pay between the minimum and maximum set amount and can adjust your death benefit based on cash value.
Moreover, as the cash value of your policy grows, you can use it toward paying your premiums. Keep in mind if you use your cash value to help cover the cost of your premiums, your policy value goes down, potentially reducing the death benefit and eventually causing your premiums to increase.Learn more about the key advantages of universal life insurance.
Things to Consider about Universal Life Insurance
Unpredictable Value: Once you reach a level of value specified by your insurance company, you can withdraw from the cash value (with interest) to pay for expenses. You can also allow the value to accrue to the point where you can skip premium payments. However, the cash value is not guaranteed.
Potentially Variable Premiums: If you withdraw from the cash value of your policy and need to replenish it when you’re older, your premium amount could be much higher than you budgeted for or can afford.
Cost: While universal life insurance is less expensive than whole life insurance, it costs more than term life insurance. Term life is often a more affordable life insurance option that allows you to purchase insurance for a specific period of time. For most people, the benefits of term life insurance are worth exploring.
Is universal life insurance a good investment?
If you’re looking for permanent coverage, universal life insurance can be a smart investment as it’s typically less expensive than whole life insurance but has similar benefits.
Which is better: term life insurance or universal life insurance?
Term life insurance is typically the most affordable and popular form of life insurance, with the ability to meet the needs of many. While universal life insurance has a higher cost, it does provide lifetime coverage (as long as the premiums are paid). Which policy type is best differs from person to person, but SelectQuote can help you compare the two and make the right choice for your personal situation.
What happens when a universal life insurance policy expires?
A universal life insurance policy is a form of permanent life insurance, which does not expire. This type of insurance is meant to provide lifetime coverage. However, the policy will lapse if the premiums are not paid.
Find the Best Life Insurance for You with SelectQuote
Understanding the complexities of different life insurance types can be overwhelming, but we can help. We’ll learn more about your needs and help suggest life insurance policies that meet them. Then, in just minutes, we’ll provide unbiased quotes from the trusted insurance companies we partner with to find the right coverage for you.
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