Universal Life Insurance Pros and Cons
Pro #2: Flexible death benefit
The whole point of life insurance is to cover your financial obligations – a mortgage, debt, or the cost of raising a family. As you age, chances are these financial obligations will decrease. Makes sense, right?
If you need less coverage at age 60 than you did at age 30, many insurers will let you adjust your death benefit accordingly. Adjusting the death benefit downward will also lower the cost of your coverage, decreasing minimum required payments.
Have questions only a real person can answer? Call us at (800) 521-7873! We’re happy to help.
Pro #3: Builds cash value
When you make a payment, the insurer takes out the cost of your coverage and any administrative fees. The rest is deposited in your cash value account, which earns interest at a rate specified when you purchased your policy. Over time, this cash value will grow.
Later, you can access that cash value through policy loans and withdrawals. There are no restrictions on what you can do with this money. We’ve had clients use it for retirement income, a child’s college tuition, home improvements, and more. When it comes to universal life insurance pros and cons, this is another big “pro.”
Want to leave the cash value to your beneficiary? Choose what we call an “increasing death benefit.” This means your cash value is added to the total of the death benefit before it’s paid out to your beneficiaries. This costs more than the next option below.
Want to spend all your cash value in your lifetime? Choose what we call a “level death benefit.” This is the most affordable option, with no price increase – but be aware that your cash value is “use it or lose it.” If you pass away with $50,000 cash value, for example, a level death benefit policy will not pay that out to your beneficiaries. It’s up to you to monitor and spend it accordingly.
Have questions about cash value? Call us at (800) 521-7873! We’re happy to help.
Pro #4: Policy types that can increase cash value growth
There are two types of universal life insurance that give you a little more control over how your cash value grows: variable universal life (VUL) and indexed universal life (IUL).
VUL: Your cash value can be split up among several subaccounts. You can then choose different investment options for each subaccount. There’s also a subaccount that grows with a fixed interest rate, which can act as a hedge against any of your invested subaccounts. Because your subaccounts contain actual investments, there’s the potential to grow more cash value – but also to lose some, too. When it comes to universal life insurance pros and cons, this could be a pro or a con, depending on your risk tolerance.
IUL: Tie the growth of your cash value to the performance of a particular stock index, such as the S&P 500. The index does well? The insurer credits your account with more interest. The index does poorly? The guaranteed minimum interest rate will protect you against losing any cash – but you won’t grow your current cash value very quickly, either. Keep in mind that you aren’t actually invested in any stock or fund; you’re simply using its performance to earn more or less interest.
Need a little advice from a real person about your insurance options? Call us at (800) 521-7873! We’re happy to help.
Pro #5: One type (GUL) is a good option for seniors
Guaranteed universal life (GUL) works really well for seniors. It’s often described as a halfway point between term life and other types of permanent life. That’s because it’s more affordable than whole life insurance but lasts longer than a term policy. When it comes to universal life insurance pros and cons, GUL has two big pros: lasting coverage and affordability.
What makes GUL different from other types of universal policies?
The premium payments don’t change over time. They’re set when you buy the policy and don’t change.
It offers little to no cash value, which means there’s less chance to build wealth but also less market risk than other universal policies.
It’s more affordable because of the minimal cash value and lack of management fees.
For people age 60+, it’s often more affordable than term life coverage.
If you’re over 60 and shopping for coverage, check out our post on term life insurance for seniors. Or call us at (800) 521-7873 and let’s see if a guaranteed universal life policy could be cheaper than a new term policy!
