Types of Life Insurance

The Types of Universal Life Insurance

Insurers offer multiple types of universal life insurance. The policy you select determines your premium payments and the potential ROI on your investment. The premiums for these policies can change due to fees and adjustments you make to your policy. Indexed universal life and variable universal life insurance provide optional wiggle room for premiums and cash value.

Guaranteed Universal Life Insurance

This life insurance package provides minimal cash value growth. You will collect some interest on the policy’s cash value. The guaranteed policy is the most affordable type of universal life insurance. You must stay on top of this policy. Missing a single payment can void the policy. Normally, the insurer walks away with all of your premiums. However, you can add a return of premium rider to receive a partial or full refund of your premiums. You can only add a rider when you initiate the policy. You cannot decide halfway through your policy to add a return of premium rider.

Indexed Universal Life Insurance

Instead of collecting interest on your policy’s cash value, it goes into an index fund. These funds often track the S&P 500 or NASDAQ. You will pay higher premiums for this policy. The insurer sets limits on how much your cash value can rise or fall from these index funds. You can miss out on gains, but you also stay protected from significant declines. You can still lose your cash value from policy charges and expenses. Policyholders may pay far more in premiums than anticipated to preserve the policy. Even though this policy remains popular, The Center of Economic Justice issued a warning in 2020 discouraging customers from purchasing this policy.
information on universal life insurance

Variable Universal Life Insurance

These complex policies give you the potential for high returns but also a significant downside. You get to select sub-accounts for your cash value investments. Some of these sub-accounts provide fixed interest rates, while others offer exposure to equities. You have some control over your investments, but you will also pay higher premiums. These policies contain more risk than the guaranteed universal life insurance policy.

What Are the Benefits of Universal Life Insurance

Universal life insurance does not expire as long as you pay the premiums. Term life insurance comes with lower premiums, but the policy expires worthless if you do not die within the term. Taking out another term life insurance policy will increase premiums since you are now older. Universal life insurance policies avoid the timing nature of term life insurance. Your beneficiaries will receive the cash value of your policy upon your death. If necessary, you can withdraw cash from your policy to cover expenses and premiums. While withdrawing funds from your policy will decrease the cash value, sometimes you need to withdraw to continue paying the policy. You can also add riders to your policy to expand your coverage.


You can learn more from our asked questions

Before deciding premiums, an insurer will ask you to complete medical exams. These exams revolve around height, weight, blood pressure, and a sample of your blood and/or urine. An insurance company will send a paramedical professional to your home to connect the medical exams. Many insurers also request medical records to determine premiums.

Insurers will raise premiums on customers with existing health conditions. Insurers justify the premium due to the additional risks they incur. If a policyholder dies early in their policy, the insurer has less time to collect premiums. Some insurance policies let you skip medical exams, but these policies come with higher premiums.

Your credit history, hobbies, and prescription drug history also contribute to premiums. Companies see health conditions and poor financials as risks. Health conditions can lead to quicker deaths, and poor financials can prevent policyholders from paying premiums. Only get life insurance if you are confident in your ability to pay the premiums.

Most people considering a universal life insurance policy also review whole life insurance policies. Both insurance policies offer permanent life insurance and the ability to borrow against the policy’s cash value.

These policies differ with premiums and cash value. Universal policies provide flexibility with premiums and death benefits. Whole life insurance policies do not provide any flexibility.

A universal life insurance policy’s flexibility can save you from surrendering the policy. If you struggle with making payments, you can lower the death benefit to reduce your premiums. You can also pay higher premiums in exchange for a higher death benefit.

Universal life insurance relies on market performance to grow your cash value, while whole life insurance offers a lower but guaranteed growth rate. Universal life insurance policies are usually cheaper than whole life insurance policies.
Your premium dictates how much you’ll pay to keep your policy. If you miss a payment, you can lose your policy. Some insurers offer grace periods, but you can’t take that chance.

Pay what you can afford instead of stretching your budget too thin. You should also consider future expenses, such as a child’s college tuition. These future costs can leave less room in your budget for insurance premiums. A fluctuating budget makes universal life insurance more appealing. You can opt for lower premiums in exchange for a lower death benefit. While not ideal, this structure lets you preserve the policy instead of surrendering it.

The easiest way to lower your insurance costs is by reducing the death benefit. A $1 million death benefit costs more than $500,000. Consider how much money your beneficiaries need when you pass. While you may want to give them more than they need, this decision can make it more difficult to manage premium payments.

Staying healthy will also help with premiums. Consuming drugs and alcohol will weaken your body and make you a greater risk. The Affordable Care Act lets insurers charge smokers up to 50% more in premiums. Having a health condition is one thing, but actively working against your body makes the problem worse.

Building your credit score will also help with insurance costs. Lower credit scores translate into higher interest rates. You can get more attractive premiums if you spend a few months boosting your credit score before taking out a policy.

Universal life insurance policies

provide significant coverage and help you support loved ones after your death. The extra layer of financial security can help your loved ones get back on their feet and cover debts