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Universal Life Insurance: Another Type of Permanent Life Insurance

Updated: December 28, 2017

For those individuals who are looking for a type of permanent life insurance, there are two major options available on the market right now.

Permanent life insurance is available in the form of whole life insurance or universal life insurance.

While most of us know about whole life insurance, not too many people are aware of the benefits associated with universal life insurance.

This type of insurance comes with flexible premiums where the policy’s cash value helps to cover some of those expenses.

In contrast, whole life insurance policies consist of the same premium payments on a monthly or annual basis.

What is Universal Life Insurance?

Universal life insurance is a type of life insurance policy where you can use the cash value in your policy to lower your annual premium payments. It is also possible to adjust the coverage amount in some policies, if you are hoping to get your premiums down to a minimum level.

With all of this built-up cash value, it is possible for the insured individual to lower their premium payments in a given year by accessing some of this money.

A universal life policy will come with a minimum interest rate, which is what you earn on the cash value in your insurance account. If the investments related to your portfolio emerge with a greater growth than the minimum interest rate, this amount is added to your cash value for the given year.

With all of this built-up cash value, it is possible for the insured individual to lower their premium payments in a given year by accessing some of this money.

Using the cash value to lower premiums means you are losing that money permanently. But it can help you in maintaining the policy if you go through a period where your finances are tighter than usual.

For example, you may hope to pay less premiums in a year where you lost your job.

What is Whole Life Insurance?

The time period for whole life insurance is the same as universal life insurance. But with whole life insurance, your premium payments will never change. You will pay the same premium from the first year of the policy until the year you pass away.

When you get whole life insurance, you do not have to worry about your policy expiring at any time.

The same cash value increase is available with whole life insurance, with interest-driven investments helping to boost the pool of money related to your account.

When you get whole life insurance, you do not have to worry about your policy expiring at any time. As long as you are current on your premiums, your policy is active from its inception to your passing.

The stability and simplicity of the whole life insurance policy is what attracts a lot of people to this option. Policyholders do not have to worry about varying premium levels or other adjustable terms.

Simply get a good policy when you are young, keep paying the premiums and watch as your cash value continues to grow. The most valuable whole life policies are purchased when you are in your 20s or 30s.

Whole Life Insurance vs. Universal Life

The biggest danger with whole life insurance is the fact that you could lose coverage if you do not meet your monthly premium requirement. This issue is not as major when it comes to universal life insurance.

It is also possible to increase or decrease the death benefit in a universal life insurance policy.

If you find yourself in a situation where you cannot cover the premium for a given month, you can use your cash value balance to pay it off. You can keep doing this as long as there is enough money in your insurance account.

It is also possible to increase or decrease the death benefit in a universal life insurance policy. This is helpful for people whose circumstances may change. For example, you may have more or less dependents than you had in mind when you first got the policy.

This flexibility is a great option for policyholders, especially among those individuals who do not have the most stable professional life.

Both types of insurance offer the option of borrowing money against your cash value, while whole life insurance policies usually allow you to withdraw some of that money too.

What is Right for You?

The truth is that both whole life and universal life insurance are great policy options for someone seeking this type of security for their dependents.

Individuals who value stability will generally go for whole life insurance, but there are plenty of valid reasons for considering universal life insurance policies too.

If you want a policy that will last for your entire life, either of these will fit the bill. The decision between universal life and whole life comes down to personal preference. Do you prefer stability, or do you want additional flexibility in terms of premium payments and/or death benefit?

Another perk of universal life insurance is that interest rates are adjusted on a monthly basis, while whole life policies have annually adjusted interest rates. This means that if the market has a great year, you will probably gain more cash value with a universal life policy than a whole life one.

But a number of people with universal life policies may find themselves dipping into the cash value too often to pay their premiums. This diminishes the cash value and may lower the amount of money you earn off the policy.

Individuals who value stability will generally go for whole life insurance, but there are plenty of valid reasons for considering universal life insurance policies too.

Saving Money on Life Insurance

Regardless of whether you are getting a universal life or whole life insurance policy, you want to make sure you are getting the best deal around. Do not hesitate to shop around for both of these policies.

Make sure you are very careful about selecting a policy, because you do not want to end up with monthly premiums you cannot afford.

Not only should you compare the same type of policy offer from different companies, but you should also compare the universal life and whole life policies everyone is offering. Depending on your age, death benefit requirements and circumstances, you may find either universal life or whole life offers more value for money.

Make sure you are very careful about selecting a policy, because you do not want to end up with monthly premiums you cannot afford. Even with universal life, you cannot continue to dip into the cash value to pay your premiums.

It is better to get a policy with a slightly lower death benefit, in order to have affordable premiums.

Too many individuals end up letting their policy lapse because they chose premiums that were beyond their financial means.