What Is Universal Life Insurance?

universal-life-insurance

Summary: Universal life insurance has many different policy options and riders that help you cover expenses when you pass away while also building cash value for present needs. There are pros and cons but many find universal life coverage to be a great investment. Depending on your needs, getting started can be a complex venture. Be sure to work with a licensed insurance agent and financial advisor to find the best coverage at the lowest cost.  Estimated Read Time: 11 mins

When you sign up for universal life insurance, the insured person is covered through permanent coverage for the rest of their life so long as the policyholder maintains the plan.

Beneficiaries receive a death benefit after the insured person passes away, however, UL policies can also build cash value that can be used by the policyholder throughout the life of the policy.

Withdrawing or borrowing from your policy can affect the death benefit beneficiaries receive and there are different types of plans available. Learn more about how to find the right coverage for your immediate and future needs.

Types of Universal Life Insurance Policies

Before you set up a universal life insurance policy, you’re going to need to find the right type of policy for your needs. Here are a few popular options to consider and review with an agent and/or your financial advisor:

Indexed Universal Life Insurance (IUL)

An IUL policy ties its performance to index funds that generate interest to increase your cash value. Depending on your carrier and policy, you may have limits to the interest you grow.

Some IUL policies allow you to take some or all of your cash value and put it in a fixed-rate account.

Variable Universal Life Insurance

Variable life insurance (VUL) puts policyholders in control of their investments. Your policy allows you to choose your cash-value investments through multiple accounts in bonds, mutual funds, and stocks.

Guaranteed Universal Life Insurance

Guaranteed universal life insurance (GUL) guarantees the death benefit of your policy through its duration while offering fixed premiums.

Though considered permanent life insurance, GUL policies have an end date chosen at purchase, usually set at an advanced age, such as 95 years old.

A key difference to remember is that GULs offer little to no cash value, unlike other permanent policies.

Single Premium Universal Life Insurance

Single-premium life (SPL) is a policy that provides coverage but the policyholder doesn’t contribute regular payments. Instead, a lump sum is paid when signing up and the carrier provides beneficiaries with a guaranteed death benefit.

As SPLs are costly to get started, they are typically options for individuals with higher net worths.

Universal Life Insurance Policy Riders

In addition to different types of plans, carriers can also help you customize your coverage through insurance riders. These are additional ways to receive benefits for specific, personalized needs.

Every life insurance company is going to offer its own roster of riders or endorsements. These are some common options you should discuss with your universal life insurance agent:

  • Benefits that help pay for long-term care expenses.
  • Term life family coverage is available in Texas, so long as your spouse and/or children are insurable.
  • The disability waiver of monthly deduction allows various costs to be waived when there are disabilities lasting at least six months and according to the terms of your policy. Keep in mind the six months to qualify must be continuous.
  • Some riders guarantee policyholders the option of increasing coverage without evidence of insurability. You might have a disability waiver of monthly deduction in order to qualify and this rider can be used when you get married or have children.

How Does Universal Life Insurance Work?

UL insurance offers more flexibility than whole-life coverage. Policyholders can adjust their premiums, which are made up of two parts: the cost of insurance (COI) and the cash value. Additionally, policyholders can also adjust the death benefit.

The COI is the minimum amount needed to keep the policy active. COI covers mortality charges, policy administration, and other expenses related to the plan.

This cost will vary depending on many personal factors, including age, coverage limits, and health.

Any premiums paid beyond the COI go into the cash value. You can even use the cash value to cover the COI, an important consideration for policyholders, as the older an insured person gets, the more the COI increases.

To cover your COI through the cash value, you'll need to have a high enough value to do so.

Here at Freedom Insurance Group, we’re proud to be a resource for all of your coverage needs, including understanding your rights and the requirements policies must have in the state of Texas.

At the bottom of this page, click the link to view the ultimate UL insurance checklist breaking down laws and requirements, presented by the Texas Department of Insurance (TDI).

Universal Life Insurance Pros and Cons

Like other policies, universal life insurance has its pros and cons. Before you sign up for coverage, be sure to conduct due diligence to determine whether or not UL is the right insurance for your needs:


Advantages of Universal Life Insurance

Disadvantages of Universal Life Insurance

Your policy has flexible premiums allowing an increase in cash value and interest by design.

Policyholders must monitor the cash value amount to be sure there is no lapse.

Some policies allow you to increase or decrease its death benefit.

All investments come with risk, so a positive return is not a guarantee.

UL is known for generating a minimum rate of return with even higher interest depending on the cash value of your policy and market conditions.

Depending on how you withdraw cash, policyholders may face increased tax bills.

You can take loans from your policy or if you have enough funding use your cash value to cover premiums.

The cash value built through the life of the policy is gone once the policyholder passes away.

Get Texas Universal Life Insurance Quotes Online

Weighing your options is important to determine the best form of coverage, however, you’ll also want to compare rates as they will vary depending on which carrier you enroll with.

Freedom Insurance Group helps Texans find top-rated insurance policies, compare the rates, and find an appropriate level of coverage for their needs.

Get your free, no-obligation, universal life insurance quote online to compare rates near you.

Contact us today to speak with a licensed agent who can help you identify an appropriate level of coverage while saving on premiums in the process.

Is Universal Life Insurance Worth It?

A universal life insurance policy can be worth it for some and not as great of an option for others. This depends on many different variables, and it’s important to review the following considerations before signing up:

  • Understand the different types of UL policies available to you. This includes the coverage offered and overall cost.
  • Know your goals and how a UL policy will affect your finances in the present and future.
  • UL policies require structure. Be sure of how you’re going to set up your coverage beforehand. Have a plan and execute it.
  • Anyone looking for flexibility with their coverage should consider a universal life policy.

How To Open an Index Universal Life Insurance Policy?

Setting up universal life index insurance coverage is a bit complicated and takes various steps to achieve.

While working with an insurance agent will yield the best results, here are a few things you’ll need to be prepared for when signing up for universal index life insurance:

Identify Your Coverage Needs

Before considering an Indexed Universal Life (IUL) policy, it's essential to assess your life insurance needs and financial goals.

Start by determining how much coverage you'll need for the foundation of your IUL policy and consider your financial obligations, such as debts, mortgages, and future expenses for your dependents when calculating this figure.

Additionally, you'll want to calculate the income your family would need to maintain their standard of living.

Understanding the cash value and investment options of an IUL is crucial as it can build in cash value but is typically linked to a market index.

Many coverage options offer a minimum guaranteed interest rate for protection during downturns in the market, helping you safeguard against rough economic climates.

You can access your cash value through loans or withdrawals, though this may reduce your coverage.

While IULs have varying options for investing to match your risk tolerance, including stock indexes or fixed interest accounts with guaranteed returns, investments of any kind carry risks and the potential of loss you'll need to review before signing up.

Investment options, interest rates, and fees vary between carriers. Consulting with a licensed financial advisor and insurance agent is recommended before enrolling in coverage.

Determine Your Eligibility

Not everyone is eligible for an IUL account as you must meet the requirements of the carrier you’re enrolling with.

Here are some of the factors life insurance companies will assess during the underwriting process before taking you on as a client:

You will need to prove that you have an insurable interest and explain why you need the amount of IUL coverage you are signing up for.

  • Be prepared to face age and health criteria. Medical exams are commonly required and for anyone with pre-existing conditions, you’ll need to bring them up with your agent before taking a medical exam while also discussing them with the doctor during the examination.
  • Where you live is a factor that can deny your eligibility.
  • Insurance companies are also going to assess your occupation. Some jobs come with inherent risks that may disqualify you for coverage.
  • ULIs often have net worth and income thresholds you must meet.

Compare Carriers and Policies With an Agent

Once you've identified your coverage needs and an acceptable investment risk, compare and research life insurance providers along with their IUL products.

You'll want to review each carrier's financial strength and choose insurers with strong financial ratings from agencies like A.M. Best or Standard & Poor's to ensure reliable payout of death benefit claims.

Furthermore, be sure to explore the many different IUL products offered along with their potential returns, fees, options for investments, and overall features.

Selecting a financially stable insurer safeguards your long-term investment and your family’s future.

Consult a knowledgeable life insurance agent who specializes in IUL insurance and works with multiple companies to help you find the best policy for your goals.

Submit an Application and Take a Medical Exam

Work with an agent who can help you fill out the forms for your policy. This will ensure your paperwork is accurate and complete.

Most insurance companies require a medical exam for your IUL application. This usually includes blood tests, an echocardiogram, a treadmill test, and possibly a chest X-ray if you're a smoker.

You’ll also discuss your personal and family medical history with a doctor. Be ready to share information about your medications, recent hospital visits, and routine check-ups.

To get the best results and to save on index universal life insurance costs, be sure to take care of your health before the exam.

Avoid alcohol leading up to the exam, drink plenty of water, fast for 12 hours before the test, and get a good night's sleep. Don’t forget to bring running shoes for the treadmill test.

After you receive offers, review them with your life insurance agent. Choose the policy that best meets your needs.

Set up a Structure and Financial Plan

Generally speaking, IUL policies are often held within structures like offshore trusts or offshore companies, depending on why you purchase a policy.

If your primary goal is estate planning, consider using a trust for advantages in asset protection and inheritance.

However, if you plan to utilize the cash value for loans or business purposes, a company structure might be more suitable for setting up your universal life-indexed insurance.

When figuring out the right structure for your index universal life insurance policy, be sure to consult your licensed financial advisor and life insurance agent before making a decision.

Always carefully review policies and your budget before enrolling.

While your indexed universal life insurance policy may offer a flexible premium structure, allowing coverage to continue even if you miss or delay payment but retain a positive value in your account, it's always best practice to remain current.

Ask questions about how payment will work, your financial goals, and what both the present and future will look like maintaining your policy's structure.

Enroll and Set Up Payments

Once you've found the right IUL policy, enroll by signing the application contract and making your premium payments on time.

Keep in mind that opening your account can take weeks and include applying, undergoing underwriting, and then getting approval to set up your policy.

IULs are complex financial tools and if you have various health issues, you can expect the 2 to 4-week underwriting process to take even longer.

Manage Your Investment

If you are approved for an IUL policy, you’re going to have to commit to ongoing management as you monitor your investment.

This means keeping an eye on the policy’s cash value along with the investment strategies being deployed.

Always review your coverage at least once per year with your insurance agent to ensure you’re getting the most out of your policy.

What Is Universal Life Insurance vs Whole Life?

Universal and whole life insurance policies are both permanent forms of coverage, however, they also have key differences, including the following:

  • UL offers flexibility in premium payments, death benefits, and savings, whereas whole life insurance provides consistent, fixed premiums, guaranteed cash value accumulation, and steady death benefits.
  • Both types of policies include a savings or investment portion and an insurance portion. This also means they both cost more than term policies on average but policyholders can borrow or withdraw cash according to the terms of their plan.

Whole life policies are good investments in many cases for those who want to have less risk involved while a universal life insurance policy may better suit policyholders with higher net worths that aren’t as risk-averse.

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