Give us a call: 888-411-1329

Universal Life Insurance Advantages and Disadvantages

What are the Universal Life Insurance advantages and disadvantages and is it the right policy for you?

Are you looking for affordable life insurance but you’re not exactly sure what life insurance type will work best for you? Many experts believe that Universal Life Insurance is a really good alternative to Whole Life Insurance.

We’re going to dive into this topic deeply and find out exactly what the Universal Life Insurance Advantages and Disadvantages are.

Let’s get to it!

What is Universal Life Insurance?

Shoppers often have no idea what Universal Life Insurance compared to other life insurance types. We first need to understand what is Universal Life insurance?

Universal Life Insurance Definition

Universal Life Insurance is a type of permanent life insurance that contains an investment savings component like Whole Life insurance but with lower premiums similar to Term Life insurance.

Universal Life Insurance policies typically have premium payment options that are flexible. This flexibility differentiates Universal Life from Term and Whole Life.

What You Should Know About Universal Life Insurance

A great advantage for choosing Universal Life Insurance is its flexibility that can allow you to decide how much you pay each year by accessing some of the policy’s cash value. 

Keep in mind, you will have to pay the minimum amount on the policy or it will lapse.

Knowing your Universal Life policy’s potential cash value may allow you to use this money to skip a payment or leave it in order to accumulate the cash value over time.

The growth of the policy will vary depending on the specifics of your policy and several other factors. 

The insurance provider you choose carry your policy will provide a minimum crediting rate that will be outlined in your contract.  That said, if the company earns more than the minimum interest rate, they might place the added interest on your policy.

This is the reason universal life policies have the ability to earn more than whole life policies over time.

COMPARE LIFE INSURANCE QUOTES

Is Universal Life Insurance a Good Choice?

A Universal Life Insurance policy might be a great fit if you’re looking for the following:

  • The flexibility to adjust the premiums and coverage amounts.
  • If you may need to borrow from your cash value while you are alive.
  • You need Permanent Life Insurance protection and have access to the cash values.

Universal Life Insurance offers shoppers:

  • Flexible life insurance premiums
  • A level or increasing death benefit
  • The insured get’s a tax-deferred investment opportunity.

Also, you can pay additional premiums to your UL policy as well.

This is called overfunding a policy and you’re adding money to the policy and building its cash value. 

Over time, the cash value will gain interest which you can borrow against or contribute to the cost of the policy later on.

The cash value account may earn a fixed interest or be credited with earnings based on the world indexes. As long as cash value is present, you may be able to miss payments for several months, a year or even longer.

Also, the Universal Life policy may provide coverage for an entire life if the cash value is able to maintain the cost of the insurance.

Different Kinds Of Universal Life Insurance

There are 3 types of Universal Life Insurance. Let’s look at how they differ.

Guaranteed Universal Life

A Guaranteed Universal Life insurance policy is a “Best of Both Worlds” type of policy.

Guaranteed Universal LifeIt is nicknamed “Lifetime Term” because it has the ability to provide you lifetime coverage at prices similar to Term Life. This policy is permanent coverage so it’s not Term life, but it also is not Whole life insurance.

Guaranteed Universal Life (GUL) has been created to last for your entire life.  The rates are guaranteed to never increase as long as you pay the premium and your death benefit will always be active.

A Guaranteed Universal Life insurance policy is very much like a term life policy if term could last your entire life.

Remember, with Term Life, you need to select your duration of 10, 20, or 30-year coverage. 

With a GUL, your rates are not being attached to a specific number of years like Term, but are priced for specific ages such as 90, 100, or even up to 121.

The older you are, the higher the monthly premium will be and also a higher probability that the death benefit will pay out.

This policy is actually a newer policy and has become very popular recently.  You can save a great deal of money, especially if you are over 60-years-of-age.

Guaranteed Universal Life Insurance Pros and Cons

Guaranteed Universal Life Pros

  1. Level premiums for life
  2. Interest rate doesn’t affect premium payments
  3. Inexpensive permanent coverage option

Guaranteed Universal Life Cons

  1. Shouldn’t be used for cash value if that is a goal of yours.
  2. Not as inexpensive as Term Life insurance.
  3. Missing premium payments may jeopardize the policy.

Indexed Universal Life

Index Universal Life is a fixed policy that is good for someone who does not have a problem with their returns getting attached to the stock index.

You are protected with Indexed Universal Life insurance.

Your money is always protected while the upside may have great growth potential.  Keep in mind, your interest crediting will move with the specific index your policy is connected to.

Indexed Universal Life Insurance Pros and Cons

Index Universal Life Pros

  1. Lifetime protection
  2. Flexible policy
  3. Cash value

Index Universal Life Cons

  1. Assumptions built into the policy
  2. Rate caps
  3. Insurance charges can be changed

Variable Universal Life

If you want to manage your mutual funds, a Variable Universal Life insurance policy (VUL) might be a good choice. 

You will use the cash value built up from your VUL policy and have separate accounts.

Variable Universal Life is a permanent life insurance policy. The performance of VUL will hinge on the overall performances of your mutual funds.

During certain months, you might not have to make any payments on your premium while other months you might have to pay the maximum amount permitted by the IRS.

This policy is not recommended for most life insurance shoppers unless you remain active and plan on frequently monitoring your policy’s performance.

Variable Universal Life Insurance Pros and Cons

Variable Universal Life Pros

  1. Premium Flexibility
  2. Death Benefit
  3. No Rate Cap
  4. Cash Value Tax Advantages
  5. Policy Loans

Variable Universal Life Cons

  1. Risk
  2. Premium Cost
  3. Difficult to understand & manage
  4. Premiums can increase

 

COMPARE FREE LIFE INSURANCE QUOTES

The Difference Between Universal Life And Guaranteed Universal Life

In this section, we will be discussing the difference between Universal Life vs Guaranteed Universal Life which is a great alternative to Whole Life.

Traditional Universal Life:

  • This policy may offer coverage for your entire life.
  • Offers flexible premiums
  • Builds cash value that may be available for loans or withdrawals.
  • Some clients will borrow or withdraw cash value funds as a supplemental retirement income.
  • If the premium is not paid and there is no cash value to cover the cost of the insurance, the policy will be canceled.

We do not usually recommend a traditional Universal Life Insurance policy.

If you’re looking for straight life insurance coverage for your entire life, a Guaranteed Universal Life insurance policy is the better choice.

Guaranteed Universal Life:

  • This policy may offer coverage for your entire life.
  • Offers flexible premiums but must be paid on time or you run the risk of cancellation.
  • There is little to no cash value for loans or withdrawals.
  • There is an added feature called No Lapse which guarantees the policy will not be canceled even if the cash value is zero as long as payments are made.
  • Less expensive than Traditional Universal Life.

The Difference Between Universal Life and Whole Life

While Universal Life offers lifetime protection and in some ways is similar to Whole Life, there are also many differences. Let’s compare Universal Life vs Whole Life.

Universal Life Insurance vs Whole Life

Two of the biggest differences arePremium Flexibility and Guaranteed Lifetime Coverage

Universal Life insurance vs whole lifeWith Universal Life, if you miss or skip a payment, the amount of the insurance is taken from your cash value. 

This standard life insurance policy may be able to provide coverage up to age 100, but there is no guarantee. 

Most of the policy’s performance is due to how much interest the cash value earns over the existence of the policy and whether you have borrowed or withdrawn funds from the policy over your lifetime.

With Whole Life, if you miss or skip a payment, the cost is borrowed from your cash value and is set up as a loan. 

If you pay your premiums, you are guaranteed to have coverage throughout your life as long as you do not borrow or withdraw funds from the policy.

What Whole Life Insurance Offers:

  • May provide a lifetime coverage
  • Cash value that you might be able to withdraw from or take as a loan.
  • Clients may borrow or withdraw cash value as supplemental retirement income.
  • If premiums are not paid, the policy will cancel if there is no cash value to pay the cost.

What Guaranteed Universal Life Insurance Offers:

  • There may be lifetime coverage
  • Inflexible premiums – normally premiums must be made on time or your policy could be canceled.
  • Very little to no cash value is available for withdrawals or loans.
  • Their “No-Lapse” option is an addition to the policy that guarantees the policy will not cancel if the cash value is zero but the policy must still be paid.
  • Is usually less expensive than Whole Life.

With the standard Universal Life policy, if your cash value drops too low, your policy can be canceled and you will lose all your money. 

Choose Guaranteed Universal because it provides lifetime guaranteed premiums which mean as long as you pay your premiums, your policy cannot be canceled. 

Guaranteed Universal Life works like Term Life except it exists for your entire life.

The Difference Between Universal Life vs Term:

The biggest difference between these two policies, Term Life only lasts as long as the duration of your term. 

In other words, your coverage will provide protection for only 10, 20, or 30 years– depending on the term you select.  

Universal is a permanent policy that will give you coverage throughout your entire life. 

You can apply the same estimated amount to your premium as with term but instead of having it available for only 10, 20, or 30 years, you pay a standard price until you reach 100.

Term Life does not provide cash value so if you cancel the policy, you will not have anything returned to you.

The 3 Main Components Of Universal Life:

Death Benefits:

When deciding how you want your death benefits paid to your beneficiary, you are given two main options:

The Type A Death Benefit or Level Death Benefit.  You can choose the level death benefit you want and start off as a given amount which stays “level” for the entire life of the policy, regardless of the cash value.

The Type B Death Benefit is another option that combines a specific death benefit along with a cash value accumulation feature which will continually build over the life of the policy.

Credited Interest Plan For Cash Accumulation:

A share of your premium is assigned by the insurance provider for the credited interest plan of your choosing. 

Equity-indexed universal life will allow you to be active in the gains via the major stock index with no risk to the principal loss. 

This is often a very attractive option for a retirement plan for some shoppers.

You are guaranteed a set rate of return regardless of how well the market performs. 

Should the market perform better than the minimum interest amount, you will receive a good portion of the gains which possibly will be capped at a certain percentage.

Flexible Premiums:

Flexibility of paying your life insurance premiums is one of the biggest differences between whole life and universal life. 

Universal premiums can be paid as the insurer wishes as long as there is sufficient cash value to pay the cost of the insurance. 

Unfortunately, you cannot change the whole life premium to fit your financial needs.

What is Guaranteed Universal Life?

What exactly is the “Guarantee” with a GUL? How does Guaranteed Universal Life work?

With GUL, the guarantee refers to as long as you or your cash value pays the minimum premium, the death benefit will be guaranteed. 

Our advice, do not rely on the market to go up or that your provider will pay you a given rate.

Universal life has two categories, guaranteed values and assumed values.  It is highly recommended you go with guaranteed values.

Who is the best Universal Life Insurance Company?

It would great if there was one company that was the best for every life insurance shopper. Unfortunately, there are too many variables that can make a big difference in the life insurance company you apply with.

With that said, these are the Top 5 Guaranteed Universal Life Insurance Companies for coverage to Age 121:

To learn more, read our review on the Best Guaranteed Universal Life Insurance Companies

Guaranteed Universal Life Insurance Quotes

Keep in mind, most insurance companies do not want to give out free rates unless they have collected your personal information.  You should, however, be given a ballpark rate to understand how much you will pay for universal life insurance.

Universal Life Insurance Quote Calculator

TIP: If you would like a universal life insurance quote, please fill out the life insurance calculator form and choose  LIFETIME for the Type of Insurance.

Guaranteed Universal Life Insurance Quotes

Compare Guaranteed Universal Life life insurance rates and companies by filling out the life insurance calculator form.

Sample Guaranteed Universal Life Quotes to Age 100

We put together a rundown of sample life insurance quotes for Guaranteed Universal Life insurance that provides coverage up to age 100. Remember that GUL policies can be purchased for different ages, such as Age 90 or Age 121.

The sample rates below is to Age 100.

Guaranteed Universal Life to Age 100

Age$50,000$100,000$250,000$500,000
30$24$37$103$182
35$32$47$109$211
40$36$56$132$258
45$46$69$165$315
50$56$86$205$386
55$68$110$263$505
60$87$143$337$664

Guaranteed Universal Life Insurance quote samples above are based coverage to age 100. Life insurance quotes are based on a healthy non-smoking man with a Preferred Plus health rating.

Universal Life Insurance Advantages and Disadvantages

Now that you’re quite versed with what Universal Life Insurance is and the various types.

Remember, there is no “perfect life insurance product” and there are several universal life insurance benefits and drawbacks.

So let’s look at the advantages and disadvantages of Universal Life.

The Advantages of Universal Life Insurance

Premium Versatility:

Universal Life Insurance Advantages and Disadvantages

You are given the option to pay higher or lower premiums that will fit your financial situation. 

Even if your finances are really excellent, you might want to opt for a lower premium when the market is not performing well and alter it when the market is on the rise.

Universal life insurance allows the policy owner to modify their premium payments and this can be helpful depending on your circumstances.

Lifetime Coverage:

As long as you keep up your payments, you will have coverage over your entire life.

Many people buy life insurance because they want to be covered for their entire lifetime.

It provides peace of mind knowing your loved ones will be taken care of no matter your age when you pass.

Options:

The insurance company will give you several options to choose from for your interest strategy:

  • Equity index strategy
  • Guaranteed one-year term deposit
  • General interest account based on the current rates

Cash Value:

Should you experience financial difficulties, you do not have to cancel your policy in order to get your cash value. 

You can keep the policy and protect your family at the same time. 

You can borrow or withdraw funds that you have accumulated and keep the unused cash value to ensure the death benefits are still available.

Cash Value Freedom:

Let’s say you normally pay $100 a month to your premium but you decide to pay $200 instead.  $100 of that payment will go toward your insurance costs while the other $100 will go into your cash value account. 

The best strategy is to put as much as you can into your cash value and let it grow during the earlier years and later on have a lower premium or possibly have no premium to pay.

If you are 25 and putting extra cash into your account, you will not have to pay on your premium when you are heading toward 80.

Tax-Deferred Money:

The death benefit from your life insurance policy won’t be taxed except when your estate is above the state or federal estate tax limit.

Your cash value investment and death benefits are tax-deferred which means the IRS will not be involved when there is a payout.  Keep in mind, if you borrow against your cash value you will have to take out a loan and incur interest.

Also, if you become financially stuck and can’t make your premium payment, the company will pay it for you from your accumulated cash value.

The Disadvantages of Universal Life Insurance

Price:

The most glaring disadvantage of Universal Life Insurance is that it isn’t the least expensive type of life insurance.

Term life will be your preferred choice if the absolutely lowest priced policy is most important to you. How much more is Universal Life insurance?

You can be looking at 3xs the cost of term life insurance.

It’s a Gamble:

Unless you purchase a Guaranteed Universal Life insurance policy, your Universal Life policy is not guaranteed.

This is quite risky.  If you happen to get stuck with a premium that is too high and you eventually can’t pay it- you’re putting your loved ones at risk.

Universal Life Insurance as a retirement plan:

You may have searched online something similar to: “Universal life insurance as Investment Vehicle“. You’ve probably come across several creative articles online about how to use Universal Life or another type of permanent life insurance for retirement or as a personal banking system. These strategies are risky and it is not the purpose for life insurance.

Please be careful if a Universal Life Insurance broker is pushing UL or another permanent life insurance product as an investment.

COMPARE FREE LIFE INSURANCE QUOTES

Final thoughts

Hopefully, this information regarding Universal Life Insurance has helped you decide if this is a policy that is good for your or not.

If you’re in need of any help, please contact us with any further questions you might have. Call us at 888-411-1329 and we’ll help you with the entire process.

We’re here to assist you and help you find the insurance policy that is best for you. We aren’t a life insurance company so we’ll never pressure you or favor one company over another.

We have access to over 40 of the best life insurance companies in the market to help find the ones who will give you the best coverage at the best price.

To learn more about life insurance, make sure to visit our page Life Insurance 101 and find out all the shopping and insider tips to buying life insurance.

Additional reading

How does the underwriting process work?

Underwriting can be a very complex subject for consumers. What are the underwriters looking at before they offer you a policy?
Read more

How do I find my health class rating?

Your health class rating will determine what you’ll ultimately pay once approved. Figure out your health rating before you get quotes. Read more

How much life insurance do I need?

Too little life insurance can be a disaster and too much coverage can be a waste of money. Let’s figure out the appropriate amount.
Read more

What now?

Life insurance Riders

Learn about all the different types of life insurance riders
Read more

Life insurance companies

Reviews from over 40 of the best life insurance companies
Read more

Life insurance with health conditions

Find out how preexisting conditions affects life insurance
Read more

Life insurance rates by age

Get information and sample rates based on your exact age
Read more