What is universal life insurance?
You may be wondering what is universal life insurance? Universal life insurance is a type of permanent policy with flexible premiums and a cash value component you can invest in different market indexes. State Farm, Nationwide, and Northwestern Mutual are some companies that offer universal life insurance.
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Michelle Robbins
Licensed Insurance Agent
Michelle Robbins has been a licensed insurance agent for over 13 years. Her career began in the real estate industry, supporting local realtors with Title Insurance. After several years, Michelle shifted to real estate home warranty insurance, where she managed a territory of over 100 miles of real estate professionals. Later, Agent Robbins obtained more licensing and experience serving families a...
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UPDATED: Sep 20, 2024
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Our life insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different life insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance-related. We update our site regularly, and all content is reviewed by life insurance experts.
UPDATED: Sep 20, 2024
It’s all about you. We want to help you make the right life insurance coverage choices.
Advertiser Disclosure: We strive to help you make confident life insurance decisions. Comparison shopping should be easy. We are not affiliated with any one life insurance company and cannot guarantee quotes from any single company.
Our life insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different life insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
On This Page
- Universal life insurance is a permanent policy with flexible premiums and death benefits
- You can use the cash value component of universal life to cover life insurance payments or increase your overall death benefit
- Monthly universal life insurance rates are higher than whole or term life insurance
You have many options for permanent life insurance, and finding the right policy depends on your investment strategy and the amount of coverage you need. Universal life insurance (UL) will give you more flexibility when it comes to premiums, death benefits, and investment indexes, but it’s not for everyone.
Continue reading to discover how universal life insurance functions and determine if it suits your financial portfolio. We analyze various universal life insurance policies and quotes from the best universal life insurance companies to assist you in finding the right coverage at the average cost of universal life insurance.
What is universal life insurance and how does it work?
Since it’s a permanent policy, universal life insurance coverage lasts your entire life. This means your loved ones are guaranteed to receive the policy death benefits upon your passing as long as you continue to make your monthly life insurance payments.
Like other permanent life insurance, UL comes with two parts — the cost of insurance (your monthly rates) and the cash value. Your policy’s cash value acts like a life insurance savings account, where a portion of your monthly rates and anything extra you decide to pay is invested. You can later borrow against it, use it to make life insurance payments, or add it to the death benefits you leave behind.
In contrast to traditional permanent policies, universal life insurance offers significantly greater flexibility. When you compare universal life insurance with other types, you’ll find that both premiums and death benefits can be adjusted according to your monthly payment preferences. To better understand, it helps to explain universal life insurance: it allows you to tailor your policy to fit your financial situation, though it’s also important to consider the cons of universal life insurance.
Universal Life Insurance Premiums
Universal life is a type of flexible premium life insurance, meaning policyholders can adjust how much they pay each month in life insurance rates.
For example, any extra money you pay over the amount owed each month is added to the policy’s cash value. You can later use the returns from your cash value to pay future universal life insurance premiums or increase the overall death benefit left for your loved ones.
In a similar vein, if you choose to pay a lower amount each month, your insurance company will offset the shortfall using the policy’s cash value. However, if you’re not cautious, you might exhaust your death benefits and potentially nullify the policy. For more insights, check universal life insurance quotes online and read universal life insurance reviews.
Universal Life Insurance Death Benefits
If you buy universal life insurance, you’ll have the option of choosing your death benefits:
- Level death benefit. The benefit amount remains the same for the life of the policy.
- Increasing death benefit. Your life insurance company pays out the death benefit plus the cash value.
Policies with increasing death benefits generally have higher universal life rates, but they ensure that your beneficiaries receive the full value of the policy. On the other hand, if you opt for level benefits, your beneficiaries will only receive the fixed benefit amount specified in the policy, regardless of any increase in the policy’s cash value from your investments. This is an important consideration in a universal insurance review when weighing universal life insurance benefits.
Like your premiums, you can also decrease your death benefits as you get older if you no longer need as much coverage. This can lower your rates, but adjustable death benefit options vary by company. Shop around for multiple life insurance quotes to find the type of coverage you need.
The Difference Between Universal and Whole Life Insurance
The biggest difference between universal life insurance and whole life insurance is the flexibility — you can’t adjust premiums or death benefits on whole life. You also have the potential to earn more with UL, as different types of universal policies offer varied investment strategies.
However, whole life insurance guarantees a death benefit. When you buy universal life insurance, you run the risk of depleting death benefits when you borrow against the cash value or use it to cover insurance rates. Find whole life insurance companies here.
Read more: Modified Whole Life Insurance Explained
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Types of Universal Life Insurance
If you’re interested in UL, it’s important to pick out a policy based on your investment strategy. How you want to use your returns will influence the type of universal life insurance you buy.
For example, you may not want to invest as aggressively if you only need extra funds to cover future life insurance payments. On the other hand, high-risk investments can pay off if you intend to withdraw the cash value later in life.
Consider your options and speak with a financial advisor, as some policies afford more flexibility than others:
- Variable universal life insurance (VUL). You can invest the cash value in any index, equity, or sub-account you wish, but earning potential depends on market performance.
- Indexed universal life insurance (IUL). IUL presents less risk than variable life because the agent chooses where to invest, but you’re limited to the index the insurance company chooses.
- Equity indexed universal life insurance. You can invest the policy’s cash value in equities, but these are the most unpredictable investment markets and often require the guidance of a financial advisor. (For more information, read our “How to Find a Life Insurance Advisor“).
The main difference between the different types of universal life insurance is how you get to invest the cash value. If you want more freedom of choice, buy variable or equity indexed life insurance.
Indexed universal life insurance is a good option if you want to supplement your existing 401(k) or IRA investments, but it’s not a strong replacement for either. Learn more about a 401(k) vs. indexed universal life insurance to determine if it’s the right investment strategy for you.
Advantages and Disadvantages of Universal Life Insurance
Now that you know the types of universal policies available and how UL premiums and death benefits work, is it the right life insurance for you?
The benefits of universal life insurance will outweigh the risks if you have the right financial plan, but you could end up without any death benefits if you misjudge the market.
Consider the following universal life insurance pros and cons before you buy:
Universal Life Insurance Pros and Cons
| Pros | Cons |
|---|---|
| Policies accumulate cash value. | Without increasing death benefits, any returns you earn go back to the insurance company after your death. |
| Cash value has the potential to earn more than whole life based on the type of investment. | You must pay a surrender fee to withdraw funds from the policy’s cash value. |
| You can borrow against the policy’s cash value. | You must pay back any loans from the policy with interest. |
| You can use the cash value to make future life insurance payments without risking a policy lapse. | Universal life insurance rates are more expensive than term or whole life insurance rates. |
UL Pros:
- Policies accumulate cash value.
- The cash value has the potential to earn more than whole life based on the type of investment.
- You can borrow against the policy’s cash value.
- You can use the cash value to make future life insurance payments without risking a policy lapse.
UL Cons:
- Without increasing death benefits, any returns you earn go back to the insurance company after your death.
- You must pay a surrender fee to withdraw funds from the policy’s cash value.
- You must pay back any loans from the policy with interest.
- Universal life insurance rates are more expensive than term or whole life insurance rates.
What is the biggest disadvantage of universal life insurance? The risk. Your returns on the cash value depend on market performance, and growth is not guaranteed. You also have to pay much higher monthly rates for this kind of flexibility and coverage.
How much does universal life insurance cost?
The rates for term and universal life insurance are generally higher compared to traditional term life or whole life insurance due to the added flexibility and potential for growth that universal life insurance provides. Additionally, the type of policy you select can influence your rates, with equity-based life insurance generally being significantly more costly.
However, you can still get competitive quotes when you better understand how life insurance rating classes work.
All insurance companies categorize policyholders based on risk, and life insurance companies consider your age, gender, and medical history to determine how healthy or high-risk you are. In general, young people with no health risks get the cheapest life insurance rates.
Average Monthly Universal Life Insurance Rates by Age
| Policyholder Age | Average Monthly Universal Life Insurance Rates |
|---|---|
| 20 years old | $36 |
| 30 years old | $42 |
| 40 years old | $63 |
| 50 years old | $90 |
Men pay more for life insurance, but all genders will see their universal life insurance costs steadily increase as they get older. For example, rates for people in their 50s are triple what 20 and 30 year olds pay. Learn more about life insurance rates by age and gender to find out how these factors affect how much you pay and lower your overall costs.
Realize that your rates will be higher than average based on the gain potential of the cash value, but you can still get the lowest quotes possible when you sign up for a universal policy in your 30s or 40s. Healthy lifestyle changes will also lower your rates, so consider quitting smoking and taking steps to lower your blood pressure and cholesterol before you get quotes.
Which companies offer the best universal life insurance rates?
Most of the major life insurance companies offer universal life policies, but you may have to shop around to find insurers with VUL or IUL coverage.
We found the top five universal life insurance companies to get you started:
- Guardian Life. This company offers variable, indexed, and equity-indexed policies at some of the lowest interest rates in the market (3.5% minimum).
- Mutual of Omaha. This company offers the best indexed universal life policy, which guarantees that your returns never go below zero, even if the market index is negative.
- Northwestern Mutual. This company offers the best variable universal life policy, with a wide range of mutual fund-like investment opportunities.
- Nationwide. This company only offers UL, but no medical exam coverage is available to healthy policyholders.
- State Farm. This company only offers UL but has the strongest customer service and lowest complaint ratio compared to other companies on this list.
Although it’s better known for car insurance, State Farm is one of the most competitive life insurance companies in the country. It offers a unique joint universal life policy that covers two people, typically you and your spouse, which is much more affordable than buying two separate policies. Read our State Farm life insurance review to learn more and compare rates.
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Case Studies: Exploring the Flexibility and Benefits of Universal Life Insurance
Case Study 1: John’s Flexible Premium Policy
John is a 35-year-old individual who is looking for a life insurance policy that offers flexibility in premium payments. He wants the ability to adjust his monthly rates based on his financial situation. After researching different options, John decides to go for a universal life insurance policy.
With this policy, he can pay extra money towards the cash value, which can be used to cover future premiums or increase the death benefit. John finds that the flexibility of universal life insurance suits his needs and provides him with peace of mind.
Case Study 2: Sarah’s Adjustable Death Benefits
Sarah, a 45-year-old professional, wants to have control over her life insurance coverage. She considers her current financial situation and future needs and realizes that her coverage requirements may change over time.
She decides to opt for a universal life insurance policy with adjustable death benefits. This type of policy allows her to increase or decrease the death benefits based on her changing circumstances. Sarah appreciates the ability to customize her coverage and knows that she can make adjustments as needed.
Case Study 3: Mark’s Investment Strategy
Mark, a 50-year-old investor, is interested in using his life insurance policy as part of his overall investment strategy. He wants to maximize his returns and have the flexibility to invest in different market indexes. After consulting with a financial advisor, Mark chooses an equity indexed universal life insurance policy.
This type of policy allows him to allocate a portion of his premiums to various investment options, potentially earning higher returns. Mark is excited about the potential for growth and the opportunity to supplement his other investments.
The Bottom Line on Universal Life Insurance
Universal life insurance is one of the most flexible types of permanent coverage. Policies last your whole life, and coverage with increasing death benefits will leave behind more money for your beneficiaries. You can also borrow against the cash value or use it to cover more expensive life insurance premiums in the future.
This flexibility doesn’t come without risks, and the insurance company cannot guarantee your investments will pay off. You will also pay higher rates for UL, so it’s important to assess your investment portfolio and compare life insurance quotes from multiple companies before you buy.
Ultimately, UL is not a suitable replacement for 401(k) plans or IRAs. So if you’re interested in buying universal life, we recommend speaking with your financial advisor.
Frequently Asked Questions
What happens to cash value in a universal life policy at death?
If you don’t use or withdraw the cash value before you die, your beneficiaries will receive it if you have a policy with increasing death benefits. Otherwise, your cash value returns go to the insurance company.
Should I cash out my universal life insurance policy?
Yes, we recommend withdrawing the cash value of your policy if you don’t intend to use it to cover your insurance rates later in life. Life insurance withdrawals aren’t taxed and won’t hurt your credit, but you may have to pay a surrender fee to the company. Learn more about cash value vs. surrender value in life insurance.
Who should consider universal life insurance?
Universal life insurance policies work best for those with healthy investments who want to complement their existing portfolio. Borrowing against life insurance will not hurt your credit, making it a very lucrative strategy if you have enough personal savings to cover the decreased death benefit.
What is universal life insurance?
Universal life insurance is a type of permanent life insurance that provides both a death benefit and a cash value component. It offers flexibility in terms of premium payments and death benefit coverage.
How does universal life insurance work?
Universal life insurance combines a death benefit with a savings or investment component. When you pay premiums, a portion goes towards the cost of insurance, and the remaining amount is invested to accumulate cash value. The cash value grows on a tax-deferred basis and can be used to cover future premiums, increase the death benefit, or be withdrawn or borrowed against.
How does a universal life insurance policy work?
A universal life insurance policy is a flexible premium, adjustable benefit type of life insurance. It combines a death benefit with a savings component. Premiums are flexible, allowing policyholders to adjust payments and coverage. The policy has two main parts: a cost of insurance (COI) and a cash value account. The cash value grows based on interest rates set by the insurer, and policyholders can use it to pay premiums, increase the death benefit, or take out loans.
How much is a universal life insurance policy?
The cost of a universal life insurance policy varies widely based on factors such as age, health, coverage amount, and the insurer. Premiums can range from a few hundred to several thousand dollars per year. The flexibility of universal life insurance allows you to adjust premiums according to your financial situation.
How much is universal life insurance per month?
Monthly premiums for universal life insurance can range from $100 to $1,000 or more, depending on factors such as your age, health, and the amount of coverage you choose. Since universal life insurance offers flexible premium payments, you can adjust them as needed.
How to withdraw money from Northwestern Mutual IRA?
To access funds from a Northwestern Mutual IRA, reach out to your financial representative or use the online portal. You will need to fill out a withdrawal form, indicating the amount you want to withdraw. Be aware that withdrawals might incur taxes and penalties based on your age and the type of IRA. For additional financial planning, you can also request a Northwestern Mutual term life insurance quote, compare top life insurance quote options, or obtain an insurance quote easy.
Is universal life insurance a good idea?
Universal life insurance can be an appealing choice if you value flexibility in both premium payments and death benefits. It allows you to adjust your premiums and coverage according to changes in your financial circumstances. However, if you prefer a simpler policy with fixed premiums and benefits, like term life insurance, it might not be the best fit. For those interested in exploring their options, obtaining an online universal life insurance quote can provide insight, and fast quotes insurance services can help you quickly compare different plans.
Is universal life insurance worth it?
Universal life insurance can be worth it if you value its flexibility and the potential for cash value accumulation. It is especially useful for individuals who want to adjust their insurance coverage and premiums over time. However, it may have higher fees and complexities compared to other life insurance products, so it’s essential to evaluate if it meets your specific needs.
Should I get universal life insurance?
Deciding whether to get universal life insurance depends on your financial goals and needs. If you desire flexibility in premium payments and coverage, and the opportunity to build cash value, universal life insurance may be suitable. It is wise to consult with a financial advisor to determine if it aligns with your long-term financial strategy.
What are the two components of a universal policy?
The two main components of a universal life insurance policy are the death benefit and the cash value account. The death benefit provides a payout to beneficiaries upon the policyholder’s death, while the cash value account accumulates interest and can be used to pay premiums, increase the death benefit, or take out loans.
What does universal life insurance cover?
Universal life insurance covers a death benefit for your beneficiaries, ensuring they receive a payout if you pass away. Additionally, it includes a cash value component that grows over time and can be accessed or used to adjust the policy.
What is a universal life insurance policy?
A universal life insurance policy is a type of permanent life insurance that provides flexible premium payments, an adjustable death benefit, and a cash value component. The policy allows you to modify your premiums and coverage over time while building cash value that can be used to pay premiums or other needs.
What is the definition of universal life insurance?
Universal life insurance is a type of permanent life insurance that combines a flexible premium structure with a cash value accumulation feature. It offers the ability to adjust premiums and death benefits while accumulating cash value based on interest rates set by the insurer.
What is the disadvantage of universal life insurance?
The main disadvantage of universal life insurance is its complexity and higher costs compared to other types of life insurance. Fees can erode the cash value, and the flexible nature of premiums can lead to insufficient coverage if not managed properly. Additionally, returns on the cash value may vary, potentially affecting the policy’s performance.
What is universal life insurance in simple words?
In simple terms, universal life insurance is a type of life insurance that combines coverage for your beneficiaries with a savings account that grows over time. You can adjust how much you pay and how much coverage you have, making it a flexible option for long-term financial planning.
Which types of life insurance offer flexible premium payments that can be adjusted by the policyholder?
Universal life insurance and variable life insurance offer flexible premium payments that can be adjusted by the policyholder. These types of policies allow you to change your premium payments and death benefit as needed.
Which universal life option has a gradually increasing cash value and a level death benefit?
The universal life insurance option with a gradually increasing cash value and a level death benefit is often referred to as a “guaranteed universal life” policy. It provides a stable death benefit while allowing the cash value to grow over time, although the growth might be slow compared to other options.
Why should I buy universal life insurance?
Buying universal life insurance can be beneficial if you want flexible premiums and adjustable coverage, along with the potential to build cash value over time. It suits individuals who want a long-term financial product that can adapt to their changing needs and circumstances.
What is a State Farm universal life insurance policy?
A State Farm universal life insurance policy is a type of permanent life insurance that provides flexible premiums, adjustable death benefits, and a cash value component that grows over time. It offers policyholders the ability to adjust their premium payments and death benefit amounts within certain limits, allowing for greater adaptability to changing financial needs.
What is Northwestern Mutual’s indexed universal life insurance?
Northwestern Mutual’s indexed universal life insurance is a permanent life insurance policy where the cash value growth is linked to a stock market index, such as the S&P 500. It combines a death benefit with a cash value component that can potentially grow at a rate tied to the performance of a chosen index, offering both protection and the opportunity for higher returns.
What is the cost of a universal life insurance policy?
The cost of a universal life insurance policy varies based on several factors including the insured’s age, health, coverage amount, and the policy’s terms. Premiums can be flexible, allowing policyholders to adjust their payments, but the overall cost is influenced by these factors and can change over time.
Where can I find cheap universal life insurance?
Finding cheap universal life insurance involves comparing quotes from various insurers and considering policies that offer competitive rates. It is essential to evaluate the coverage, flexibility, and financial strength of the insurance company to ensure that the lower cost does not compromise the policy’s quality or benefits.
What does Allstate offer in universal life insurance?
Allstate offers universal life insurance policies that provide flexible premium payments, adjustable death benefits, and a cash value component. These policies are designed to offer lifelong protection with the ability to adjust premiums and death benefits to meet changing needs.
What is the Prudential life insurance review for universal life insurance?
Prudential’s universal life insurance is generally well-reviewed for its flexibility and range of options. Reviews often highlight the company’s strong financial stability and customer service, as well as the ability to customize policies to fit individual needs. However, specific experiences and opinions may vary, so it’s beneficial to review detailed feedback and compare with other providers.
What is EIUL insurance?
EIUL insurance stands for Equity Indexed Universal Life insurance. It is a type of universal life insurance that ties the cash value growth to a specific stock market index. It combines elements of both permanent life insurance and investment opportunities, offering potential for cash value growth based on market performance.
What are the best guaranteed universal life insurance companies?
The best guaranteed universal life insurance companies are those known for their financial stability, strong customer service, and competitive policy features. Leading insurers often include companies like Prudential, State Farm, and MetLife. It is important to review individual policy options and company ratings to determine the best fit for your needs.
Does Farmers offer universal life insurance?
Farmers’ universal life insurance is a permanent life insurance product offered by Farmers Insurance. It features flexible premiums and adjustable death benefits, along with a cash value component that grows over time. The policy is designed to provide long-term coverage with options for customizing the policy to meet individual financial goals.
How can I get State Farm’s whole life cash value quotes?
State Farm’s whole life insurance policies build cash value as time goes on, which can be accessed via loans or withdrawals. Instant life quotes for this cash value depend on factors like the insured’s age, health, and the details of the policy. For accurate information on State Farm universal life insurance cash out options and personalized State Farm universal life insurance quotes, it’s best to contact State Farm directly.
What are the two components of a universal life insurance policy?
The two main components of a universal life insurance policy are the death benefit and the cash value. The death benefit provides financial protection to beneficiaries upon the insured’s death, while the cash value grows over time and can be used to pay premiums or taken as a loan.
What is joint universal life insurance?
Joint universal life insurance is a type of policy designed to cover two people, usually a couple. It offers flexible premiums and adjustable death benefits, with the death benefit paid out upon the death of the first or second insured, depending on the policy terms. This type of policy can provide coverage and financial protection for both individuals.
Your life insurance quotes are always free.
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Michelle Robbins
Licensed Insurance Agent
Michelle Robbins has been a licensed insurance agent for over 13 years. Her career began in the real estate industry, supporting local realtors with Title Insurance. After several years, Michelle shifted to real estate home warranty insurance, where she managed a territory of over 100 miles of real estate professionals. Later, Agent Robbins obtained more licensing and experience serving families a...
Licensed Insurance Agent
Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective, third-party resource for everything life insurance-related. We update our site regularly, and all content is reviewed by life insurance experts.
