Universal life insurance is a type of permanent life insurance with more flexibility to adjust your premiums, death benefits, and cash value. It can cover you for the rest of your life as long as you pay the premiums. Universal life typically has a savings element like whole life insurance, but charges lower premiums, like term life insurance. The Coleman Agency will explain how universal life works and the types of UL you can choose from.
How Universal Life Works
Some policies require a fixed premium (meaning that it will not change), but most have a minimum premium payment you must make to cover mortality, policy administration, and other expenses necessary to keep the policy active. This is called the cost of insurance (COI).
While you’re required to pay a minimum fee, universal life uniquely allows you to pay as much over the COI as you wish. Why would you willingly pay a higher premium? Anything apart from your COI will go towards your cash value. Like whole life, the cash value is a savings/investing component that you can access via a withdrawal or loan.
When you pay a higher premium, your cash value increases more. You’ll have to pay taxes on the excess cash value of your withdrawal. However, you may borrow against the accumulated cash value without tax implications.
Guaranteed Universal Life
Guaranteed universal life is the most stable of the three types you can choose from. You choose the age you want the policy to end (the older you choose, the higher your premiums), and pay premiums up to that point. Unlike the other options, this policy does not build much cash value—it’s meant to last for a long time, not build up potentially risky investments. If you want universal life insurance coverage without risking much, this is the option for you.
Indexed Universal Life
Indexed universal life allows for some wiggle-room with your premiums and death benefit—you may be able to adjust them within certain limits if your needs or budget change. As a reminder, you can pay above your premium to contribute to the cash value, which is then invested in a stock market index.
There’s a risk of losing your investment, but most indexed policies have a minimum guaranteed payment. It’s a good middle-of-the-road policy in terms of risk—more potential growth than a guaranteed policy, and less risk for loss than a variable policy.
Variable Universal Life
A variable universal policy also lets you vary the premiums and death benefit amount, within limits. Unlike indexed universal life, a variable policy allows you to make your own investment choices to build your cash value. This could mean huge increases or losses, and there’s no guaranteed minimum if it flops. Variable policies are the most complicated of the bunch and require fairly knowledgeable insight to be successful. Talk with a licensed expert to see if it may be a good option for you.
Contact the Coleman Agency
Universal life may appeal to you if you want coverage that lasts as long as you do. But finding the right company and specific policy options, riders, etc. is very difficult without the right help. To see what The Coleman Agency can do for you, call us today at (803) 802-7507.
