Universal Life Insurance


Universal life insurance is a relatively new insurance product, intended to combine permanent insurance coverage with greater flexibility in premium payment, along with the potential for greater growth of cash values. If you seek lifetime insurance coverage and tax-advantaged investing with long-term growth potential, consider universal life insurance. Lots of options and flexibility make universal life insurance a good choice if you want to build towards your future while helping to ensure that your loved ones are well-protected.

Main advantage

Main advantage of universal life insurance is that you can combine the protection of life insurance with the growth potential of tax-advantaged investing.

Universal life insurance addresses the perceived disadvantages of whole life – namely that premiums and death benefit are fixed. Universal life insurance plans usually allow more flexibility in premium payment. With universal life, both the premiums and death benefit are flexible.

Understanding Universal Life Insurance

Universal life plans offer a wide range of investment options, a choice of death benefits, optional benefits and riders, flexible ways to pay your premiums, and innovative ways to access the value you accumulate over the life of your plan.

It’s bad to be old or poor, but it’s worse to be both

Generally, there are several types of universal life insurance policies which include interest sensitive (also known as “traditional fixed universal life insurance”), variable universal life, guaranteed death benefit, and equity indexed universal life insurance.

A universal life insurance policy includes a cash value. Premiums increase the cash values. Except with regards to guaranteed death benefit universal life, this flexibility comes with the disadvantage of reduced guarantees.

Flexible death benefit means the policy owner can choose to decrease the death benefit. The death benefit could also be increased by the policy owner, but that would typically require the insured to go through a new underwriting. Another feature of flexible death benefit is the ability to choose from option A or option B death benefits, and to change those options during the life of the insured:

  • Option A is often referred to as a level death benefit. Generally speaking, the death benefit will remain level for the life of the insured and premiums are expected to be lower than policies with an Option B death benefit.
  • Option B pays the face amount plus the cash value. If cash values grow over time, so would the death benefit which is payable to the insured’s beneficiaries. If cash values decline, the death benefit would also decline.

Presumably, option B death benefit policies would require higher premiums than option A policies.

You would certainly give your life for your children, so why not insure it for them? (Carlos Banhelyi)

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