logo

Is Universal Life Insurance Right for Me?

Insurance Neighbor • Aug 22, 2023
man with three children

Universal life insurance is a type of permanent life insurance that provides lifetime coverage as long as you pay your premiums. Like other permanent life insurance, it has a cash value element that can be used for different purposes. Universal life differs from whole life in that it allows you to lower or raise your premiums within certain limits and offers more flexibility.

How Does Universal Life Insurance Work?

Premiums for universal life insurance have two components – the cost of insurance (COI) amount and the cash value or savings component. The COI is the minimum premium payment required to keep the policy in effect. This amount can vary depending on the age and insurability of the policyholder and the insured risk amount. Premiums collected in excess of the COI amount accumulate within the cash value portion of the policy. As the insured ages, the cost of the insurance will increase. The accumulated cash value can cover the increases if the amount is sufficient.

What Are the Benefits of Universal Life Insurance?

Pros of a universal life insurance policy include:

  • Flexibility: These policies typically have flexible premiums within limits. Policyholders can pay more than the COI; in which case the excess premium amount is added to the cash value and accumulates interest. If enough cash value accumulates, policyholders may lower or skip premium payments without the policy lapsing. In some cases, policyholders may be able to increase the amount of their death benefits (although a medical exam may be required) or lower their death benefits to lower their premiums.
  • Cash value growth potential: Like all permanent life insurance, universal life policies can accumulate cash value. These funds earn interest based on whichever is greater – the policy’s minimum interest rate or the current market. As cash value accumulates, policyholders may use part of it in the form of withdrawals or loans.
  • Low-interest loans: Policyholders may borrow against the cash value of a universal life insurance policy without tax implications. These loans are made at interest rates often lower than rates available for personal loans, with no credit check. However, outstanding loans at the time of death will reduce the death benefit by the amount that is outstanding.

What Are the Disadvantages of a Universal Life Policy?

Although it offers several important benefits, universal life insurance has certain disadvantages. One is that the cash value of the policy is lost when the policyholder dies. The beneficiaries only receive the death benefit, and the insurance company keeps the cash value. Some withdrawals are taxable. Returns on cash value are not guaranteed, as they are with whole-life policies. In addition, with the flexibility to lower premiums and make withdrawals in times of need, you run the risk of your cash value falling to zero and your premiums not covering the cost of insurance, in which case your policy could lapse.

If you are shopping for life insurance, you may want to compare term life, whole life, and universal life policies. Our friendly agent is happy to review the different options with you and help you obtain a life insurance policy that meets your needs.

A group of people are sitting on a dock near a lake.

5 Reasons Life Insurance Matters

By Insurance Neighbor • 22 Sep, 2024
September is Life Insurance Awareness Month, a time to reflect on the benefits of life insurance and its vital role in securing your family’s future. Life insurance is more than just a policy; it’s a commitment to providing your loved one with financial security and peace of mind in the following five ways: 1. Financial Protection for Loved Ones One of the primary reasons people…
A man in a suit is using a tablet in a warehouse.

2024 Business Insurance Trends to Consider

By Insurance Neighbor • 19 Sep, 2024
As the end of 2024 approaches, the nature of business risk continues to evolve, driven by technological advancements, regulatory changes, and global challenges. Staying informed about emerging trends allows businesses to protect themselves against threats. There is a growing trend in crafting a business insurance policy that addresses risks associated with data breaches, regulatory compliance, the workforce, catastrophic weather, and social inflation. 1. Data Breach…
A man and a woman are looking at a tablet in a car showroom.

To Lease or Finance a Car?

By Insurance Neighbor • 16 Sep, 2024
Deciding between leasing and financing a car is a common dilemma for many prospective car owners. This decision carries significant financial implications and can also reflect personal lifestyle choices. Whether you prioritize having the latest model or prefer the long-term benefits of ownership, you want to weigh each option’s pros and cons. Moreover, your choice can affect your insurance premiums and coverage needs, making it…
Two men in suits are shaking hands in an office.

Key Person Life Insurance: Safeguarding Your Business’s Future

By Insurance Neighbor • 07 Sep, 2024
Key person life insurance is a specialized policy that businesses take out on the life of an employee whose death could significantly impact the company’s operations. This type of insurance is essential for protecting a business’s financial health and continuity, ensuring that it can weather the loss of a key individual without severe disruption. Who Qualifies as a Key Person? A key person is someone…
A woman is opening the door of a restaurant.

How Business Insurance Helps You Weather Any Storm

By Insurance Neighbor • 04 Sep, 2024
September marks National Preparedness Month when businesses are encouraged to assess their readiness for unexpected challenges. Whether it’s a natural disaster, a cyberattack, or a legal dispute, being prepared is essential to the longevity and success of any business. One of the most critical components of preparedness is having the right business insurance. It provides a safety net to help your business survive and recover…
A man and woman are looking at a tablet in their new home.

6 Renovations to Boost the Value of Your Home

By Insurance Neighbor • 02 Sep, 2024
Home renovations are a powerful tool for increasing the value of your property. Whether you’re planning to sell or want to enhance your living space, strategic improvements can offer a significant return on investment (ROI). However, while engaging in renovations is tempting, it’s imperative to consider the potential insurance implications of substantial changes. The following suggested renovations can boost your home’s value and ensure you’re…
A poster for national hispanic heritage month with colorful squares on a white background.

Celebrating Hispanic Heritage Month

By Insurance Neighbor • 01 Sep, 2024
Hispanic Heritage Month, celebrated from September 15 to October 15, honors the rich cultural heritage and significant contributions of Latino communities in the United States. This celebration reflects Latino culture’s profound impact on American society and aligns with the ongoing diversity and inclusion efforts within various industries, including insurance. Recognizing and celebrating this diversity strengthens communities and fosters a more inclusive environment. Brief History of…
A man and a woman are sitting at a table looking at papers.

5 Common Reasons People Are Denied Life Insurance

By Insurance Neighbor • 22 Aug, 2024
Life insurance offers financial security, covering expenses and providing for loved ones after one’s passing. However, not everyone is approved for life insurance. Common reasons for denial include pre-existing medical conditions, high-risk occupations, and hazardous hobbies. Additionally, a history of substance abuse or severe health issues can also lead to denial. Understanding these factors can help applicants address potential problems and improve their chances of…
A woman is talking on a cell phone while holding a tablet.

How to Reduce Expenses in Your Small Business

By Insurance Neighbor • 19 Aug, 2024
One of the most common struggles for small businesses involves managing costs and reducing expenses. It’s essential for maintaining profitability and fostering growth. Practical strategies such as renegotiating contracts, optimizing energy usage, and exploring cost-effective technology solutions can help owners effectively reduce expenses without compromising quality or productivity, ensuring long-term sustainability and success. Analyze and Monitor Your Spending Analyze and monitor spending by conducting a…
A yellow sign that says hurricane season on it

5 Practical Tips for Your Hurricane Season Travels

By Insurance Neighbor • 16 Aug, 2024
Traveling during hurricane season presents unique challenges, including unpredictable weather and potential disruptions. Proper preparation and insurance coverage are essential to safeguard your trip and finances. Ensuring you’re well-prepared can mitigate risks and provide peace of mind. As we enter hurricane season, remember the following practical tips to help you travel safely and stress-free, ensuring your journey remains smooth and enjoyable despite potential weather-related obstacles.…
More Posts
Share by: