Universal Life Insurance: What It Is & How It Works

what is Universal Life Insurance

It would be best to have life insurance in your assets during the hustle and bustle of life. It provides you with mental satisfaction and supports your family financially in case of your uncertain death. 

Life insurance comes in various types and forms, like whole life insurance, universal life insurance, term life insurance, and others. In this blog post, we will discuss universal life insurance in detail. It is one of the most flexible types of life insurance, but it also comes with some complexity and risks. So let’s start reading to take a deep review of this policy and to understand its working. 

What is Universal Life Insurance?

Universal life insurance, also known as adjustable life insurance, is one of the two types of permanent life insurance (the other one is whole life insurance). It offers you a death benefit with a cash value component or savings. It also provides flexible premiums and allows you to adjust the death benefit according to your financial status. 

Universal life insurance gives you more control over where your cash value is invested or used. If you buy life insurance as a part of your investment plan, universal life insurance could be a better choice than a whole life insurance plan. 

How does Universal Life Insurance Work?

One of the plus points of universal life insurance is that it offers you flexibility and lifelong safety. Still, various factors influence the working of this policy and make it different from other types of insurance. Let’s explore them together. 

1- Premium Payment

It is the amount a policyholder must pay during a life insurance policy term. However, universal life premiums are adjustable once you pay the initial payment. Most insurance companies have fewer premiums to cover expenses, taxes, and the cost of the policy. 

2- Expense Charge of Premium 

The premium expense charge is deducted from your premiums to cover insurance fees, mortality, commissions, and other expenses. And this balance goes toward policy cash value. 

3- Interest Rate 

If the insured portfolio earns more than the guaranteed or given interest rate, the earned amount is credited to the policy value. 

4- Insurance Cost

These are the deductions that are done from the policy value every month. They cover the death benefit, supplemental benefits, and any riders you buy. 

5- Administrative Expenses

The administrative fee is deducted from your account monthly to cover expenses like accounting and record keeping. It helps the administration to maintain your policy smoothly. 

6- Surrender Charge 

If you give up your policy during the surrender charge period or get some loans against it, your plan is reduced by that amount. However, the detail will change as the policies vary by length and amount. 

What are the types of Universal Life Insurance?

Here are the three best universal life insurance options:

1- Guaranteed Universal Life Insurance 

It is one of the most convenient and reasonable plans for permanent life insurance. Guaranteed life insurance offers a death benefit payout and uniform premium payments for the policy durations. 

2- Indexed Universal Life Insurance 

It is the most common type of insurance policy that allows stock market gains. The cash value of indexed life insurance has a minimum guaranteed interest rate. Therefore, if you want to buy this policy to increase your investment portfolio, remember that you never lose the amount. 

3- Variable Universal Life Insurance 

Variable universal life insurance is another type that allows the insured great investment options. The policyholder can invest in mutual funds to enhance or reduce the cash value. However, it has flexible premiums along with an adjustable death benefit

What is the average cost of Universal Life Insurance?

Like any other type of insurance, universal life costs depend on which policy you select and how much coverage you may need. Some personal information like age, health status, smoking status, lifestyle, hobbies, occupation, and ZIP code are also required. 

When you go for a permanent life insurance plan, your coverage is high, so you must pay more. Selecting a no-lapse guarantee universal life plan may cost you more than a traditional policy, while indexed or variable universal life cost even more. But a chance to invest your cash value can offset the increased cost, particularly when you use the profit to pay premiums. 

Consulting a professional financial advisor is recommended if you consider buying a universal life plan. He will give you a better idea of average premiums and helps you navigate the available options. As a result of which, you can choose a policy that is the best fit for your circumstances. Universal life insurance is typically more complicated, with a greater risk of lapsing. So ensure that you have a clear understanding of what you are going to buy for future investment. 


Is it worth buying universal life insurance?

Buying universal life insurance for future investment may be a good choice based on your life insurance needs. It provides more flexibility, but at the same time, it requires more monitoring for lapse concerns until you get the no-lapse guarantee. Consider these aspects to decide whether it’s a good choice or not. 

The Last Word 

Universal life insurance is a type of permanent life insurance with amazing options like investment saving components, loan options, and flexible premiums. It also allows you to adjust your premiums within limits to be less costly than a whole life insurance plan. If you have bought a universal life plan, you have to be careful that the cash value does not get so that either you have to pay large sums in premiums or your policy lapses.