Universal Life Insurance: Possibly the best Bargain for your premium
People who have ever been disappointed in any product—from consumer goods to vacations deals—will tell you that cheapest is not always best. The cheapest life insurance you can buy is Term life; at least it’s cheap for about 20 years. When the initial term expires, however, unless you simply don’t need life insurance any more, you will quickly find out that going cheap will catch up with you in the years you can least afford an increase in your premium.
A far better choice would be to purchase universal insurance, which is usually less costly than whole life but is still a permanent form of life insurance with cash value, loan and withdrawal benefits, and some minimum growth guarantees.
What is universal life insurance?
To explain it simply, universal life insurance is a policy with two components, a savings component and a life insurance component. Your premium plus interest goes into the savings component. From there money is withdrawn monthly to pay your cost of insurance and annual fees. As long as you always leave enough cash to pay the cost of insurance, you can even make an occasional withdrawal yourself, although most people don’t do that except in cases of dire emergencies.
Sometimes people confuse universal life with variable universal or with universal term. In the case of universal term, we are referring to a universal policy that is funded with only a minimum premium. It is not a type of policy, but rather the way a universal can be made to function. Most companies will guarantee such a policy to remain in force with no change of premium for at least 15 years. However, if the premium is never increased, the policy will eventually lapse just like a term policy. The only time a universal life policy should be purchased with a minimum premium is when a person is temporarily unable to pay a higher premium—say, as a result of job loss—and is fully aware that the premium needs to be increased as soon as possible.
Variable universal life is a different type of policy altogether, and, because it invests in the stock market, it requires an agent or broker who has a general securities license. A broker dealer who invests in various securities, or an insurance company with an in-house brokerage will be able to offer variable universal products. Most insurance companies offer only the fixed universal life insurance. Since you usually cannot take money out of a variable life product, those interested in variable products with death benefit protection are probably better off with a variable annuity.
Some interesting features of Universal Life Insurance
Universal life insurance has features of both term and whole life policies with the security of a whole life. The following points may be kept in mind when choosing your universal life policy.
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Guaranteed cash accumulation as long as sufficient premiums are paid
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Flexibility to change both premium and face value. Increases in face value generally require proof of insurability
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Numerous optional riders available including a Term rider for additional coverage
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Lower premiums than whole life in most cases