Is Universal Life Insurance Worth It?

So, you're thinking about buying universal life insurance. But is it actually worth it?

In this blog post, we'll break down the pros and cons of universal life insurance so that you can make an informed decision. We'll also discuss how to choose the right insurance policy for your needs.

What is Universal Life Insurance?

Universal life insurance is a type of whole life insurance policy. Universal life insurance policies are like whole life insurance in that they are long-term, flexible, and have a cash value component. Unlike whole life insurance, universal life insurance does not have strict premiums or death benefits. Instead, the policyholder can choose to change their premiums and death benefit as their needs change.

Universal life insurance also has a cash value component that grows tax-deferred. The cash value can be used to help pay premiums or can be withdrawn for other purposes. Universal life insurance is a flexible, long-term whole life policy that can be customized to fit the policyholder's changing needs.

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The two main parts of a universal life policy

Universal life policies have two main parts: the death benefit and the cash value component.

The death benefit is the payout you receive when you die. The cash value component is the money that's left over after the insurance company takes out the cost of the insurance and any administrative fees. This money goes into your cash value account. Specifically, an indexed universal life insurance policy offers cash value in addition to a death benefit.

You can use this money for things like retirement or college expenses. Universal life insurance policies are a great way to get coverage and grow your money at the same time.

How the cash value component works

A portion of each premium payment is set aside into the cash value account, which earns interest over time. The cash value can be accessed by the policyholder through loans or withdrawals, and this cash value can also be used to help cover the cost of premiums if the policyholder experiences financial hardship.

The death benefit is paid out to the beneficiary regardless of how much has been withdrawn from the cash value account. A universal life policy is a popular choice for those who want the flexibility to adjust their coverage and death benefit as their needs change over time.

Pros and cons

Pros of universal life insurance

Lifelong Coverage

Unlike term life insurance, which only covers you for a set period of time, universal life insurance covers you for your entire life as long as you continue to pay premiums. One of the main advantages of universal life insurance is the potential for cash value growth. With each premium payment, a portion of the money goes into a savings account that can grow over time.

Tax-Deferred

This growth is often tax-deferred, which means you won’t have to pay taxes on it until you withdraw the money.

Flexible Death Benefits

Another advantage of a universal life policy over term life insurance is that it offers flexible death benefits. For example, guaranteed universal life insurance offers guaranteed death benefits that your family will receive no matter the time of your death. You can change the amount of coverage you have as your needs change over time.

Flexible Premiums

Finally, universal life insurance also offers flexible premiums. If you have a policy with level premiums, such as a guaranteed universal life insurance policy, you can usually make changes to your premium payments as long as they remain within certain minimum and maximum limits.

Cons of universal life insurance

Risk of Policy Lapse

One of the main disadvantages is that it requires you to monitor your policy closely to make sure it remains in force. If the cash value declines or the cost of insurance goes up, your policy could lapse and you would no longer be covered. Another downside to universal life insurance is that it typically has more exposure to risk than other types of permanent life insurance, such as whole life insurance.

Affordability

This means that your policy could lose value if the stock market declines. Finally, universal life policies often come with higher costs than other types of life insurance. While the initial premiums may be lower than those for whole life insurance, they may increase over time as you age and as the cost of insurance goes up.

Who should buy a universal life insurance policy

Universal life insurance is a permanent life insurance product that offers policyholders the ability to adjust their premiums and death benefits as their needs change over time. It is a good fit for people in special circumstances who need permanent life insurance protection but want the flexibility to change their premiums or benefits as their life circumstances change.

If you have a high-net worth and already maxed out other tax-deferred savings accounts, a universal life policy offers you an additional investment vehicle. Also, in case you have a lifelong dependent, like a special-needs child, who will need care after you pass away, a universal life insurance policy can ensure they receive adequate financial support.

Considering getting universal life insurance? Talk to a Dundas Life insurance advisor today.