Term Life Insurance
Whole Life Insurance

Universal Life Insurance Policy

insurancebrochure Universal Life Insurance Policy Quotes

Unlike term, permanent life insurance, including a universal life insurance policy, will pay the death benefit no matter when the insured dies, assuming required premiums are paid.

Compared to traditional whole life, a universal life insurance policy can provide lower cost life insurance for permanent coverage. A universal life insurance policy with guaranteed level premiums to age 100 years pays the specified benefit at death or age 100, whichever comes first. It has lower premiums than traditional whole life because each policy is designed to build up the minimum cash value to enable a pool of universal life insurance policies to be permanent.

Universal Life Continuity

In traditional permanent life insurance, each policy must support itself by itself based on its own earnings and guarantees alone. With the guaranteed level premium to age 100 available with a universal life insurance policy, all the company's policies of this category are partly reinsured by a reinsurance company. By transferring some of the risk, the universal life insurance company is able to make a guarantee, otherwise not feasible, of a level premium to age 100 at the minimum cost to you.

This guaranteed level premium to age 100 is similar in quote result to term and is called "Term to 100" in the quotes shown online (above).

Guaranteed level premium to age 100 is just one of many variations available with a universal life insurance policy. Because the quotes are simple, like term, it is the only one suitable for generating quotes online.

Universal Life Cost

Because it is permanent, more will have to be paid in than for temporary term so that a savings account balance is built up within the policy to pay the higher cost of insurance as the insured gets older. However, you do not have to pay the same amount of premium every month or every year. Within limits, you can contribute different amounts as you choose to do so, i.e., a universal life insurance policy has flexible premiums.

The amount of death benefit can be increased if health has not deteriorated significantly (according to insurer guidelines), and can be decreased subject to limits specified in the policy. Withdrawals can also be made from the account value. Funds withdrawn reduce the account value and the death benefit. Such withdrawals, flexible premiums, and adjustible benefits are typically not available in traditional whole life.

Like whole life insurance, the policyholder can borrow against the account value of a a universal life insurance policy.

Various options may also be available. The death benefit could remain steady at a specified level until the account balance reaches such a value that the death benefit increases as the account value increases. Alternatively, the death benefit could just vary up and down from the beginning of the policy according to the account value. The death benefit would be a specified amount plus whatever the account value is.

For an additional option premium, the amount of insurance could be increased at certain dates or events, e.g., marriage or becoming a parent, irrespective of change in health.

The account earns tax-deferred interest. Even though the guaranteed interest rate may low, when interest rates are high the account may earn more than the guarantee, but it will never earn less.

Because interest assumptions are made in illustrations of how the policy may perform beyond the guaranteed interest rate, those illustrations can be very misleading if interest rates are lower in future years than what is assumed. Outside of guaranteed level premium to age 100, you may find that future premiums increase far beyond what the illustration suggests.

universal life insurance rates

Variable Life Merits

Because some insurance buyers may like the flexible nature of universal life insurance but be dissatisfied with the account being limited to earning interest, Variable Universal Life insurance was devised to satisfy that demand. Part of the premium pays for the death benefit, and part of the premium payment goes into a separate investment account.

The policyowner decides where the cash value of the account will be invested, choosing from what the insurance company has arranged to be available in conjunction with the policy, e.g., mutual funds, stocks, bonds. The hope is to increase the value of the investment account beyond what the payment of interest by the insurance company would produce.

A level premium guarantee is not available. Some would say that instead of combining investing with insurance, it is better to buy a guaranteed level premium to age 100 and keep investments independent of the insurance company.

Universal Life and Whole Life

Unlike universal life, traditional whole life insurance is designed to have a continually increasing cash value until it equals the amount of the death benefit. Therefore, you are contributing to a constantly growing built-in savings account in addition to paying for the death protection benefit. The premiums are therefore significantly more than that of universal life insurance with a level premium to age 100 for the same death benefit.

However, there is a possibility that life insurers will be required to significantly increase their reserves for the level premium product and this may substantially increase its required premium. If you are interested in this type of policy, don't procrastinate.

Should I get Term or Universal Life?

The saying "Buy term and invest the difference" makes no sense. It's nonsense. Temporary insurance and permanent whole life or universal life insurance address different needs. You should buy term if that best fits your needs. You should buy permanent if that best fits your needs. Buy what fits your needs and preferences. That makes sense.

¶ Nothing here constitutes advice or recommendation of any nature, whether legal, tax, financial planning or otherwise. The above comments represent only the author's understanding of the subject and may be incorrect or out of date.

Life Insurance Alternatives