Benefits of Universal Life Insurance 2024 Guide
Written by Daniel Ray, Life Insurance Expert |
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Fact Checked by
Lisamarie Monaco |
Editorial Disclosure
Universal life insurance is a type of permanent life insurance that combines the features and benefits of whole life, term, and UL.
It can be used as long-term coverage for individuals who want to provide their beneficiaries with protection in case they die during the policy’s guaranteed period or as a savings vehicle for those looking to build wealth over time.
Universal Life may be right for you if you want the convenience of one premium payment per month; have no need for immediate access to your money because it is invested in growth-generating assets; are not interested in writing a will because your beneficiary would receive all proceeds from your death benefit, or need peace of mind knowing that you won’t outlive your cash-value account balance.
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What Is Universal Life
Is universal life insurance a good investment strategy?
Universal life insurance is a type of permanent life insurance different from than whole life. It offers the affordable coverage of term life insurance, but with the added benefit of investment opportunities. This is because universal life policies have a savings option where you can accumulate cash value build-up.
Universal life policies are usually quite flexible. Your cash value builds up, death benefits, and premiums can be customized to suit you. Universal life differs from whole life insurance because it allows the policyholder to access their cash value build-up and use the interest to help pay for premiums.
Advantages of Universal Life
One of the major benefits that universal life has over whole life insurance is its versatility. Universal life premiums are separated by the insurance company into two categories. The first category is the cost of insurance, while the second category is the cash value saving component.
Knowing the cost of insurance paid is to maintain coverage from the policy, the cash value portion of the payment is more flexible. The accumulation of funds from the cash value portion can pay missed premiums, rather than being used for further investment.
Cash Value In Universal Life Insurance
While whole life insurance and universal life are both considered permanent coverage, they are different in the way that the cash value accumulates. With a universal life policy, there is a guaranteed interest rate for each contract. This means that your cash value accumulation must meet a minimum interest rate.
If it doesn’t, then the insurance company will cover the difference. If the accumulation should exceed the minimum interest rate, the extra money overallotment goes into the cash value of the plan. Therefore, universal life gives policyholders the potential to earn more than a whole life insurance policyholder.
In the future, universal life insurance policyholders are free to take a portion of their cash value build-up without it affecting the death benefit. These policy loans are nontaxable, making the deal even sweeter. However, taking out a loan that eventually not paid back, then the death benefit is given to your family won’t be the full face amount.
Term vs. Universal Life
Unlike universal life, term life insurance is temporary. This kind of life insurance will cover you for a predetermined amount of time. Choose terms from 10, 20, or 30 years in length.
Term life insurance differs in many ways from permanent life insurance. Term life insurance is usually more affordable. There is also no cash value build-up with term life insurance, meaning you can not use term life insurance as an investment opportunity.
Although term life insurance plans are temporary, you can usually choose to renew your plan towards the end. In some cases, you may be able to transfer your policy to a permanent life insurance policy if you wish.
Term life insurance is also far more basic in its coverage. A term life insurance policyholder, coverage only lasts for the duration of their term. They only receive death benefit coverage, since there is no additional cash value build-up.
How Can I Get The Most Affordable Rates On My Life Insurance?
Before applying for life insurance, we have a few suggestions for you. These tips can really help cut down the cost of your life insurance. Follow the tips below to make a better impression during your medical exam:
- Eat Healthy — Improving your diet can help you lose weight, lower your cholesterol, and make you a healthier person overall.
- Exercise Regularly — Maintaining a solid physical condition can make a huge impact on your life insurance rates. Regular exercise improves heart health, bone health, and more.
- Quit Tobacco Products — People who smoke cigarettes usually pay 2-3 times more on their premiums than nonsmokers. If you quit smoking 12 months before you apply for life insurance, your rates will be 50% less than any time in the previous year.
- Compare Quotes — This is rule number one of finding life insurance. By comparing multiple insurance companies, you’re far more likely to see more affordable coverage.
Hiring an independent insurance agent can help you find the best and most affordable life insurance coverage. They’ll connect you with the top life insurance companies, and they’ll know which companies have the most lenient medical underwriting for you.
If you have any questions, please feel free to contact us at PinnacleQuote (855)380-3300.
FAQs
Q: What are the key benefits of Universal Life Insurance?
A: The primary benefits include lifelong coverage, a cash value component that can grow over time, flexibility in premium payments, and the ability to adjust death benefits and premiums.
Q: How does the cash value component work in Universal Life Insurance?
A: A portion of the premium payments goes into a cash value account, which earns interest and grows tax-deferred. Policyholders can access this cash value through loans or withdrawals during their lifetime.
Q: Can I change the death benefit amount in Universal Life Insurance?
A: Yes, one of the key benefits is the flexibility to adjust the death benefit amount. This allows policyholders to adapt coverage to changing financial needs, such as paying off a mortgage or providing for dependents.
Q: Is there flexibility in premium payments with Universal Life Insurance?
A: Yes, policyholders can adjust the premium payments within certain limits. They can pay more to build up the cash value faster or pay less when financial circumstances require a reduction.
Q: Are there investment options within Universal Life Insurance policies?
A: Some Universal Life Insurance policies offer investment options for the cash value component, allowing policyholders to allocate funds to different investment vehicles. This can potentially enhance cash value growth.
Q: How does the death benefit work in Universal Life Insurance?
A: The death benefit is the amount paid to beneficiaries upon the policyholder’s death. It is generally income-tax-free and can be adjusted based on the policyholder’s preferences.
Q: Can I take loans from the cash value in a Universal Life Insurance policy?
A: Yes, policyholders can take loans against the cash value of their Universal Life Insurance policy. These loans are usually tax-free, but unpaid loans can reduce the death benefit.
Q: Are there tax advantages to Universal Life Insurance?
A: Yes, the cash value grows tax-deferred, meaning policyholders don’t pay taxes on the growth as long as the funds remain within the policy. Additionally, death benefits are typically paid out tax-free.
Q: How does Universal Life Insurance provide financial flexibility?
A: The flexibility in premium payments, death benefit adjustments, and the ability to access cash value can offer financial flexibility. This makes Universal Life Insurance suitable for individuals with evolving financial needs.
Q: Can Universal Life Insurance be used as an estate planning tool?
A: Yes, the death benefit from a Universal Life Insurance policy can be used to provide liquidity for estate taxes or to leave a financial legacy to beneficiaries.
Q: How do I determine if Universal Life Insurance is the right choice for me?
A: Assessing your long-term financial goals, risk tolerance, and the need for flexibility is crucial. Consulting with a financial advisor or insurance professional can help tailor a policy to your specific needs and circumstances.
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Conclusion
Universal life insurance is an affordable, long-term solution to protect your family and keep them financially secure. If you are looking for a way to invest what you save on term life insurance premiums while also receiving the coverage of your whole life, universal life may be the perfect fit. Get started today by requesting a quote from us here at PinnacleQuote Life Insurance Agency!
