CHICAGO, November 24, 2021 (GLOBE NEWSWIRE) – Universal life insurance is a type of permanent life insurance that offers flexible death benefits, premiums and cash value savings options. And while universal life insurance is usually a more complex life insurance product, those looking for the right life insurance may be wondering if it is even an option. The good news is that many people can qualify for universal life insurance, and there are several types to choose from.
What is Universal Life Insurance?
Universal life insurance is a permanent policy that offers lifelong coverage. Like term life insurance, it offers a death benefit that is paid tax-free to certain beneficiaries after the death of the policyholder. But universal life insurance also creates cash value. And with increasing cash value, profits grow tax-free.
When a policyholder makes a payment for universal life insurance, part of that payment goes towards fees and premiums, while the remainder goes to the present value account. And the policyholder can take out loans to this cash value account while they are still alive, albeit for a fee, as with a life insurance policy.
The big difference between whole life and universal life, however, is that with universal life insurance, the death benefit, the premium payments and the savings option can be flexibly adjusted. And the types of changes that can be made depend on the policy.
Types of universal life insurance
There are three main types of universal life insurance:
- Guaranteed Universal Lifetime (GUL): A GUL policy has a death benefit and premium payments that do not change. And this policy often has little or no cash value, which makes it the cheapest option. Policyholders should keep in mind that the policy can be terminated with a single late or missed payment, so they should ensure they can make consistent payments before submitting an application.
- Variable Universal Life (VUL): The advantage of a VUL policy is that the policyholder decides how the cash value of the policy is invested. And that means returns will depend on how well the assets are selected and how they perform over time. Policyholders can also choose a fixed rate investment if they do not want to manage the investments themselves. High fees and complexity mean a VUL policy needs to be thoroughly reviewed before it is committed. Also, keep in mind that this policy generally involves the risk of loss of present value and you should speak to a suitably licensed financial advisor before purchasing a variable policy.
- Indexed Universal Life (IUF): IUF policies can offer some flexibility in premium payments and death benefits. Part of the premium paid into the policy covers fees and charges, while the rest is included in the cash value. And the present value of an IUF policy can be tied to a stock market index like the S&P 500. But participation rates and caps can mean that the profits made on the account are only a fraction of what an investor would make by depositing funds directly into the exchange. Since IUF guidelines can also be complex, it can be important to understand the bigger picture and the projected returns before signing up.
Eligibility for universal life insurance
Several factors affect who can be approved for universal life insurance and how much it will cost:
- age: Insurers usually offer younger applicants better rates. And while policies can cover up to 100 years or more, the cost of purchasing a policy can be more expensive later in life.
- Bless you: People in better health are more likely to get admission and secure better premium rates.
- lifestyle: Unhealthy habits like smoking, a risky lifestyle, or a high-risk job can lead to denial of coverage or higher premiums.
The bottom line
Universal life insurance is a complex financial product that combines life insurance with an investment component. While anyone can qualify for universal life insurance, insurers usually look to younger, healthy, and risk averse individuals to approve of the best rates. Anyone interested in universal life insurance should seek advice from a financial advisor to advise on the right step for their particular financial situation.
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