•••••••The ideal life insurance policy for your needs will depend on several criteria, including who depends on your income and whether you wish to invest some of the money. Universal life insurance is a permanent life insurance policy that provides more flexibility but could be more challenging to understand than other types of plans.

A Universal Life Insurance Policy

Universal life insurance is permanent life insurance that provides both a death payout and a cash value element. The policy will be in force for the insured person’s life as long as the payments are made on time. Three types of universal life insurance include indexed universal life, guaranteed universal life, and variable universal life.

This policy allows policyholders to adjust the size of the death benefit or have flexible premiums in contrast to other permanent life insurance types. Also, the cash value component has the potential to pay out more interest, but its value can decline with time.

The interest earned on the cash value component is based on the money market rate of interest or, in the case of some universal insurance policies, a rate based on a market index. Whatever you make will raise the value of your investment, which will aid in covering your premium.

Types of Universal Life Insurance

Variable Universal Life Insurance

With variable universal life insurance (VUL), the cash value component of a policy can be invested in any way the policyholder chooses. Stocks, bonds, and mutual funds are available options, and you can decide to invest across different accounts.

Indexed Universal Life Insurance

Although your insurer may set a cap on your rate of return, indexed universal life insurance (IUL) enables you to receive interest correlated with the performance of index funds like the S&P 500. Alternatively, you can decide to earn all or some of your cash worth in a fixed-rate account.

Guaranteed Universal Life Insurance

A form of policy known as guaranteed universal life insurance (GUL) gives a guaranteed death payout and premiums that remain constant for the duration of the policy. Despite frequently falling under the category of permanent life insurance, GUL plans typically have an end date that is decided upon at the time of purchase.

Policyholders select an advanced age (95, 102, etc.), and the policy will be in effect up to that time. Unlike other permanent life insurance policies, a GUL policy may have little to no cash value.

What is the Process of Universal Life Insurance?

Your universal life insurance policy’s cash value will increase as long as you continue to pay your premiums. You may have to pay the amount upfront or through set monthly installments, depending on the insurer and the policy you finally choose.

Regardless of the type of universal policy you have, as long as the cash value in your policy is present, your funds will continue to grow income-tax-free. However, depending on your universal policy type, the cumulative value could decrease if your investments perform poorly.

But once you take money out, you’ll have to pay taxes, and your death benefit can go down. If you cancel your policy, you can keep most or all of your collected cash value.

Your beneficiaries will only get the life insurance payout after you pass away and your policy is still in effect; the insurance company retains any assets above this amount. Beneficiaries often pick either a single tax-free payment or a series of quarterly, semiannual, or annual payments. As an extra choice, some insurers provide annuities, contracts in which the insurer agrees to give the recipient (the policy beneficiary) a single payment or ongoing payments for a defined period.

Comparison of universal and whole life insurance



  • Can be used as a vehicle for investing
  • You can change the death benefit, premium payments, and coverage amounts.
  • Can be used as a vehicle for investing
  • Ensures the accumulation of cash value
  • Policy premiums can increase
  • investments could underperform
  • Less flexibility

Both universal and whole life are types of permanent life insurance that include both a cash value and death payment. Although you can utilize your policy as an investment vehicle with any life insurance, the primary distinction is how the cash value develops over time.

A whole life insurance policy gives a guaranteed interest rate and a constant premium. The amount of your death benefit is also fixed. All of these factors make whole life premiums more expensive than universal life policies.

On the other hand, universal life does not guarantee returns on your cash value because the interest rate varies based on the type of investment your insurer selects. Your accumulated assets will decrease if your investments perform poorly, which could lead to increased premiums. However, your investments for your universal life insurance policy could perform well, perhaps even better than what whole life insurance can offer, which would mean reduced rates.

Comparison of Term and Universal Life Insurance

Term life insurance provides a death benefit to your beneficiaries, not a cash value component like universal life insurance. You choose a payout amount and make installments up to the policy’s expiration. If you decide on a 20-year policy, for instance, the death benefit is only valid during that period, provided your policy is still in effect.

A term life insurance policy is easier to understand because it provides a death payout. Universal life allows you to modify your death benefit at any time during the policy’s term and offers variable premiums. It is also a better choice for people who want to incorporate life insurance into their investment plans.

However, term life insurance is better if you’d prefer to pay fewer premiums and buy a plan that supports your dependents.

Who Should Buy Universal Life Insurance?

A universal life insurance policy is the ideal option for people with long-term insurance needs and the means to cover the cost of one. For instance, it makes sense to use extra money to fund a universal life insurance policy if you have lots of liquid assets in your emergency fund and money in retirement accounts.

However, a term life insurance policy is a better option if your only concern is giving your spouse and children a replacement source of income. If you don’t have enough money to invest further, it is wiser to wait and put what you have into your employer-sponsored plan to benefit from company contributions.

Contact Information:
Email: [email protected]
Phone: 8668727470

Mark Zimmerman, Sr currently is the Managing Member of Aurifex Financial Group, LLC. Aurifex Financials mission is to help clients realize their vision of living life on their own terms by providing credit repair, financial counseling, insurance solutions, and money lending services. This is accomplished by using a holistic approach. After hanging up his uniform after 22 years of service in the military, Mark still had a desire to help others, so he created Aurifex Financial.
As part of Accredited Financial Counselor (AFC) credentials, Mark had to obtain and document over 1000 hours of helping others which was accomplished by helping hundreds through a local non-profit. As an independent Insurance Agency, Mark is licensed in property and casualty, home, business, health, Medicare, life, and annuity products.

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