Universal Life Insurance: How Does It Work?

Life insurance could mean life and death to a loved one. Universal life insurance is a choice that many make thanks to the flexible premium and huge coverage typically offered by a UIL (universal life insurance).

Universal life insurance is permanent life insurance – in other words, it remains in effect for the rest of the life of the policyholder, or until 90 -120, as long as the premiums are paid.

This insurance sees the insurer pay and, upon death, will release the benefit to the beneficiaries. Insurances differ from one to another when it comes to their premium policies, with some allowing policyholders to build cash value and withdraw or use it to consolidate the premium costs that could rise.

There are three main types of universal life insurance: indexed, variable, and guaranteed.

We’ll start with the easiest: guaranteed universal life insurance. This simple form of life insurance doesn’t offer cash value, but you only need to pay a fixed amount of premium every month, a hassle-free choice. But it also means you can’t adjust the death benefit amount like the other two types.

Indexed universal life insurance is a common choice among policyholders. A portion of the money invested will be allocated to an equity index account. It isn’t a direct investment, but for layman’s explanation, calling it one isn’t wrong either. The interest rate varies, as any kind of market investment does, and might not have an ROI if there’s a loss in that year. But you won’t lose any money – you simply won’t get the interest.

Variable Univerlife Insurance is similar – but with higher risks. Policyholders have wider power over the cash value, giving them the ability to use it to do actual investments in securities. There’s no cap on how much you can earn from the investments, but at the same time, you can lose all your money. It also tends to be a lot more expensive.

Whole life insurance: a better, pricier choice

Then there’s the whole life insurance for those who are willing to shell out even more money. The amount beneficiaries tend to be a lot bigger than the universal life insurance, with a fixed premium price to pay. There’s also a guaranteed minimum rate of return for the cash value and sometimes, you may even receive dividends.

Remember that you can decide to withdraw your cash value, depending on the company’s policy, instead of investing them.

Death is a sure thing.

Not trying to sound gloomy, but death is a factor every human will go through. Universal life insurance is also worth considering early on as the older you get, the fewer choices you may have within your capabilities, on top of the possibility of having a pre-existing condition. You won’t be completely denied of them, but it won’t be your best choice at that point.