Universal life insurance- Types and benefits

Say you finally decided on permanent coverage for yourself, you might want to check out the universal life insurance plan.

When life insurance is involved, you could get confused about which policy best covers your needs. Since everyone has their unique needs, so is the life coverage. They serve the insured according to specific instructions and the insured expectations.

For example, term life coverage has types and conditions, but they do not cover the rest of the policyholder’s life. Though they are significant and have many advantages, they can never last longer than they should. And they are for certain people who do not mind a short policy.

That said, if the idea of permanent coverage appeals more to you, we’re about to throw more light on why universal life coverage is a better choice.

What is universal life insurance?

Universal life is yet another type of permanent coverage that covers the policyholder for the rest of their life if they keep to the rules.

The universal life coverage has savings features that help the policyholder build cash value. With this type of life insurance, you will be handed the right to choose between the three types of this coverage: variable, guaranteed, or indexed universal life insurance. By the way, the universal has flexible premiums to your advantage.

You may want to compare it with whole life insurance and term life coverage to know better how it works.

Furthermore, universal coverage comes without any tax implications. So, you can comfortably borrow from the cash build-up of your policy without worrying about paying tax.

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How does universal life insurance work?

Universal life coverage stays with you for as long as you live, and it has more tolerating options than its counterpart, whole life coverage. 

The policy has a feature that helps you estimate the premium amount you need to keep your policy alive. 

Before you purchase this policy, your age, health, and risk associated with your kind of policy all measure up to the estimated premium amount you need to be paying.

Furthermore, your premium will begin to increase as you advance in age. Policyholders with enough built-up cash value may not have to worry about the increment because the cash in the policy savings will take care of it. 

Policyholders without enough cash build-up will pay the increased premiums themselves.

If you keep your policy going, you are sure of the beneficiary payout to your loved ones which always comes as a lump sum.

The cash value builds up is entirely separate from the beneficiary benefits. 

Each time you pay for your premium, some part of it goes to the cash value savings while the other part goes into the cost of your policy.

It is why you can decide on how much you pay as a premium so long it does not hurt the policy in general. Therefore, when you get a high cash value build-up after some years, you can take a breath, and your cash value pays for your premiums.

But it gets tricky at this point because using up your cash value for paying your premium may hurt your coverage because your premium increases in cost when you get to a certain age.

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It’s essential to know the reason why you bought your policy. If your loved ones are in mind, you may not want to go against your policy rules.

Types of universal life insurance

There are some other types of universal life insurance; variable universal, indexed universal, and guaranteed universal life insurance.

Variable universal life insurance

The variable universal coverage is still a permanent coverage that offers cash value build-up and a beneficiary payout. Your policy allows you to invest your savings in your chosen investment vehicle.

Guaranteed universal life insurance

Guaranteed universal life behaves like term life insurance, which has a low premium rate and does not necessarily care about building up your cash value.

Indexed universal life insurance

It is permanent coverage that has a cash value feature. The indexed universal policy allows you to add riders to your policy and is very flexible.

Universal life insurance Vs. Whole life insurance

Firstly, both policies are for life and do not have a short span like term life insurance—they both have cash value build-up and beneficiary benefits.

However, the premiums for universal coverage tend to increase as the age of the policyholder advances and is flexible. But the premium for the whole life coverage stays the same.

The cash value tends to increase if the market is favorable because you can invest it, but the cash value of whole life coverage stays and only adds the usual interest.

Universal life insurance Vs. Term life insurance

The big difference between these two coverage is that one stays for life while the other expires in a few years.

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Term life coverage lasts 10 to 30 years before it expires, and you can choose to renew or abandon it. You can convert some term life coverage to permanent life coverage. However, you can not reverse the universal to a term life coverage.

Advantages and disadvantages of the universal life coverage

The very noticeable benefit of this policy is its flexibility. This policy permits the policyholder to change the size of your premiums. 

Also, when you pay a high amount of premiums at the early stage of your policy, you quickly build up cash which can help to offset your premiums when you go out of funds.

Your investment is another advantage; you earn more from your invested cash build-up.


As you age, the premium becomes more expensive. It doesn’t matter if you are broke or not, but the premium keeps getting higher with age. Furthermore, your investments may not go as planned, and you may begin to lose money.


In summary, the best you can do for yourself is to get an insurance expert to help you make these tough financial decisions before you buy the policy.

You must also look into different insurance companies and shop for quotes; this will help you to get the hang of the policy.

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