Discover universal life insurance.
Learn about the different types of life insurance to find the coverage that works best for you.
What is universal life insurance?
For many people, universal life insurance is a bit of a mystery. You may have heard the name, but don’t know much about how it works or what it costs. At SelectQuote, we can help you understand universal life insurance and how it differs from whole life insurance and other insurance types.
Universal life insurance is one type of permanent life insurance, providing a benefit to one or more people (also known as beneficiaries) when you pass away. The value accrues and earns interest as you pay your monthly premium, leading to the opportunity to also act as a savings account. You can withdraw money from it to pay bills, but of course, this reduces the overall value of the policy and what you will end up leaving your beneficiaries.
Life Insurance Retirement Plan
Another benefit of some universal life insurance policies is to use them as a retirement tool. These policies—known as Life Insurance Retirement Plans (LIRPs)—allow you to overpay your premiums and borrow against or withdraw the cash value of your policy as regular income in retirement. A LIRP can be an effective retirement strategy if you’re maxed out on other retirement contributions or need to provide long-term or permanent care for dependents after you die.
One downside of universal life insurance is the cost. Premiums are high—typically much higher than the more popular life insurance option, term life insurance. There can be economic risks associated with universal life insurance when it comes to value, making it one of the more complex insurance products to understand and use.
Key Advantages of Universal Life Insurance
Lifetime Coverage – Universal life insurance and whole life insurance both fit under the category of permanent life insurance, which means they both offer lifetime coverage as long as premiums are paid. Universal life insurance can potentially be less expensive than whole life.
Flexibility – A universal life policy is more flexible than any other type of life insurance. Although premiums tend to be high, you get to determine what premium you pay between the minimum and maximum set amount and can adjust your death benefit based on cash value. Additionally, if your cash value can cover the cost of your premiums, you can let them! Keep in mind…if you use it to help cover your premiums, your policy value goes down, potentially reducing the death benefit and causing your premiums to go up.
Things to Consider about Universal Life Insurance
Unpredictable Value – Once you reach a specified level of value, you can withdraw on the cash value (with interest) to pay expenses. You can also allow the value to accrue to where you can skip premium payments. However, the cash value is not guaranteed. Economic conditions—specifically the performance of the investment returns of the insurance company—can cause your policy to actually lose value.
Expensive – While universal life insurance is less expensive than whole life insurance, it’s far more expensive than term life insurance. Term life is often a more affordable life insurance option that allows you to purchase insurance for a specific period of time. For most people, the benefits of term life insurance are worth exploring.
Potentially Variable Premiums – If you withdraw from the cash value of your policy and need to replenish it when you’re older, your premium amount (which is based on current age and medical condition) could be much higher than you expected or can afford.
The Bottom Line …
Given that universal life insurance has more variables than whole life insurance, it is advisable to thoroughly research how this type of coverage works before making a decision to buy a policy. Your best bet? Let us instantly compare available options from our trusted carriers for your specific needs.