July 19, 2023
First introduced in 1979, universal life (UL) insurance has gained in popularity and market share since its inception. Unlike the other primary type of permanent life insurance, whole life (WL), which has fixed premiums and a fixed death benefit, universal life insurance offers both flexible premiums and a flexible death benefit.
Whereas whole life insurance focuses on guarantees, universal life focuses on flexibility. UL policyowners can adjust their policy to meet their changing financial situation and needs. This article will help you better understand universal life insurance by explaining the four primary types of UL, which will help you select a policy that will best meet your life insurance protection needs.
Universal life (UL) insurance made its entrance into the permanent life insurance market in 1979 and has become an increasingly popular product since then. Unlike whole life (WL) insurance, which provides a fixed premium and death benefit for the life of the policy, UL allows policyholders to increase or decrease their premium payment and the policy’s death benefit.
This flexibility is particularly popular with insurance buyers who want a life insurance policy that can adapt to their changing financial situation. Many people who like the cash value component of permanent insurance also prefer the ability to increase contributions to their cash value as their income increases.
Similarly, if a policyowner needs temporary relief from paying their premium due to a downturn in their financial situation, a UL policy allows them to use the accumulated cash value to pay their premium for a period of time and resume paying for the policy as their budget permits.
Universal life is also popular because it comes in four distinct types that can satisfy both those who are more conservative financially and want policy guarantees and people who prefer to pair their life insurance with equities for greater potential growth of their policy’s cash value.
Let’s look at a brief overview of each type.
Understanding these four different types of universal life insurance will help you select a policy that will help you meet your short and long-term financial goals.
This popular form of universal life provides you with the most affordable way to have the flexibility UL is so well-known for. The policy offers cash value accumulation tied to flexible premiums and death benefit options but doesn’t come with a guarantee that the policy won’t eventually lapse if you make changes, such as not paying enough in premiums to keep the policy in force. Unlike whole life, non-guaranteed UL must be watched to ensure it is adequately funded.
This type of universal life is better suited for people who want flexibility with a guarantee that their UL policy won’t lapse. You get all of the benefits of a traditional UL policy and have a set minimum premium which will guarantee that your policy won’t lapse. However, paying the minimum premium will result in slower and smaller cash value accumulation unless you choose to pay more than the minimum. Again, the benefit of flexible premiums works to your advantage with guaranteed UL.
Your cash value will grow faster with indexed UL if the stock market performs positively since your policy’s cash accumulation is tied to a stock market index, such as the S&P 500 index. Though indexed UL policies have a minimum guarantee of 0-1%, so you won’t lose cash value if the stock market produces negative returns, your gains are typically capped at 8-10% regardless of how strongly the market performs. In addition, your policy with indexed UL is not guaranteed and can lapse if you don’t pay the target premium or your cash value isn’t enough to pay costs and fees.
While the potential rewards are the highest with variable universal life (VUL) insurance, so is the risk of your policy lapsing. VUL cash value growth is also tied to stock market performance through indexes, money market accounts, or mutual funds. VUL is not recommended for people who are not experienced or comfortable with stock market risk, and the policy must be continually monitored for the possibility of lapsing.
Lighthouse Life helps universal life policyowners who are interested in learning more about selling their policy for a lump sum cash payment. Our team of life settlement experts will be happy to answer your questions about the settlement process and will work to get you the highest purchase price for your policy. Contact us today – we’re committed to helping you live comfortably and enjoy greater financial stability.