Is the Universal Life Insurance Policy Ideal for You?

Universal life insurance policy is a more recent life insurance policy option. It seeks to take the advantages of both term life and whole life while mitigating on the limitations of these policies. Some of the advantages of this insurance policy over both term life insurance and whole life insurance policy are explained below;

  • Life Time Cover – Universal life policy is a permanent cover unlike term life. This means that the insurance company cannot cancel the policy for your lifetime unless you opt out. Depending on the type of universal life policy you go for, you may have level insurance costs throughout the coverage or you may have a guaranteed cost for a period of time after which the insurance company may increase the cost of insurance. Life-time coverage means that once you start on the policy, you do not ever need to take any medicals for the policy or renew your policy. Your beneficiaries are guaranteed of the sum assured whenever you pass on.
  • Structured Policy – Universal life, unlike other life policies has all aspects of the insurance premium disclosed and well structured. The policy premium is divided into the cost of insurance, administrative costs and cash value.
  • Adjustable Premiums up to Zero – One of the major advantages of the universal cover is that you can adjust the amount of premiums that you pay as the premiums are not fixed. If you are in a financial hardship or have pressing cash needs, you can reduce the amount of premium that you pay. You can even choose not to pay any premiums for a period of time and this will not terminate your policy. When you reduce or choose not to pay premiums, the cost of insurance and the administrative costs are withdrawn from your cash value account.
  • You Choose Investment Option – With the universal policy, you choose the investment vehicle that you want your cash value to be placed in. The insurance companies have a range of investment accounts that you can choose from. The investment accounts include fixed return accounts, variable returns, offshore investments, stock market investments, investment on government bonds or a mix of various investment options.
  • Premiums Earn Interests – With the universal policy, your cash value earns interest based on the investment account that you choose. The growth in the cash value enables you to have a higher payout and also enable you to get a higher value of loan against your cash value. This is unlike whole life where your cash value is equivalent to your premiums and you do not earn interest.
  • Cash Value Loan With no Repayment – Unlike the term life policy, the universal policy also allows you to take out a loan against your cash value. What is great about this loans is that you do not make any repayments for the loan. All you pay is the interest element of the loan. The repayment of the principle is removed from your cash value account.

Limitations of Universal Life

Though the universal life insurance policy has such great advantages, it also comes with some limitations. For the average seeker of life coverage, universal life insurance is usually seen as being too complicated and many people shy away from the cover because of this complexity. Furthermore, the universal life insurance policy is more expensive than the term life insurance though it is cheaper than the whole life insurance policy.