Universal life insurance is a type of permanent life insurance that offers flexible premiums and the option to adjust the death benefit over time. It also has a cash value component, which grows tax-deferred over the policy’s lifetime.
How Universal Life Insurance Policies Work
Universal life policies have two main parts:
- an insurance component– which pays out the death benefit when the insured dies
- a savings component– which allows policyholders to borrow their savings
Universal life insurance offers flexibility in payments and death benefits, allowing policyholders to pay more than the scheduled premium, as well as adjust the death benefit amount over time. Additionally, universal life policies may provide coverage up until age 95 or 120.
Types of Universal Life Insurance
There are several different types of universal life insurance policies available, including;
- traditional or non-guaranteed policies
- indexed universal life insurance
- variable universal life insurance
Each type has its own advantages and disadvantages that should be weighed before deciding. For example, while variable universal life insurance may offer good returns on cash value if investments are made wisely, it is also complex and may require expert advice to make informed decisions.
Potential Problems with Universal Life Insurance
There are some potential drawbacks and risks associated with universal life insurance. These include:
- Higher premiums: Universal life insurance premiums tend to be higher than those of term life insurance policies. This is because the former offers both death benefits and a savings component, resulting in expensive maintenance.
- Investment risk: The savings component of a universal life insurance policy is typically invested in a variety of financial instruments, such as stocks and bonds. Thus, the policyholder is exposed to market risk, resulting in fluctuating cash values and uncertain returns on investment.
- Complexity: Universal life insurance policies are often complex and difficult to understand. As a result, it can be challenging for policyholders to grasp the terms and conditions of their coverage fully. This can lead to misunderstandings and confusion, particularly when it comes to making changes to the policy or submitting a claim.
- Limited flexibility: While universal life insurance policies offer some flexibility in terms of premiums and death benefits, there are limits to how much these can be changed. You may need help to make significant adjustments to the coverage, which can be a problem if your needs evolve.
- Surrender charges: If a policyholder decides to cancel their universal life insurance policy before it matures, they may be subject to surrender charges. These charges can be substantial, especially if the policy has been in force for a long time, and can significantly reduce the amount of money the policyholder receives back.
Universal life insurance is important because it provides a flexible and permanent life insurance coverage option and allows you to adjust your premiums and death benefit amounts based on your changing financial needs. Nonetheless, it is crucial to work with experts to get the coverage best suited to your unique situation.
Final Thoughts
Universal life insurance is important because it provides a flexible and permanent life insurance coverage option and allows you to adjust your premiums and death benefit amounts based on your changing financial needs. Nonetheless, it is crucial to work with experts to get the coverage best suited to your unique situation.
At Donald Weiss Insurance Services, we can help you get tailored life insurance coverage that will protect you and your loved ones against future financial uncertainties. Contact us today to get started on your policy!