What is Universal Life (UL) Insurance?

There are a variety of different life insurance types. However, universal life insurance may be a great option if you are looking for flexibility around premium payments. A universal life insurance policy offers permanent life insurance with a savings element and low premiums that are similar to those of term life insurance. You are usually able to adjust your premium payments within this type of plan.¹

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What is a universal life insurance policy?

Universal life insurance is a type of permanent life insurance plan that typically has an investment function and lower premiums.² If a policyholder wanted to access the money within the investment portion of the plan, they would be required to pay taxes on the withdrawals.³ Compared to whole life insurance, universal life insurance has a few more options.

Universal life insurance premium payments can change over time due to a variety of factors, so it's important for potential policyholders to consider their long-term goals.⁴ This policy may be a good choice if you are looking for permanent coverage, greater adjustability, and more awareness of how your cash value grows.

How does universal life insurance work?

Some life insurance companies allow you to get group universal life insurance, or you can just get a plan for yourself. This depends on this insurance company you are looking into. In both cases, the general price of the life insurance policy is the minimum amount of a premium payment that must be paid to keep the policy active.⁵ Three common types are guaranteed universal life insurance, indexed universal life insurance and variable universal life insurance.⁶ Here’s how each works:

Guaranteed universal life insurance: This universal life insurance policy doesn’t come with the same flexibility as other plans. It typically has minimal cash value growth and lower premiums.

Indexed universal life insurance: Indexed universal life insurance can grow based on the stock market index chosen by your insurance company.⁷ You may be able to have more say in how the cash value portion of your plan will accumulate.

Variable universal life insurance: This policy lets you invest the cash value in sub-accounts of your choosing. It’s typically complex and can be a riskier universal life policy, since your cash value could decline if your investments don’t perform well.

Universal Life Insurance Advantages and Disadvantages

Some of the greatest benefits of choosing a universal life insurance policy are that you have more input on how the cash value accumulates, premiums are adjustable, and they can yield a substantial death benefit.

On the other hand, there are some disadvantages to universal life insurance too. Read on to learn about these pros and cons more in depth.

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Can I cash out a universal life insurance policy?

You can access your universal life insurance policy’s cash value while still alive through policy loans, withdrawals, or surrendering the policy. With a policy loan, you can repay the funds over time on your own schedule. This type of loan often comes with lower interest rates. If you decide to withdraw funds, this will reduce the policy’s death benefit. Surrendering the policy would allow you to receive your policy’s cash value minus any surrender charges, but keep in mind that this means your policy will be canceled.

Universal life insurance advantages and disadvantages

On the other hand, there are some disadvantages to universal life insurance too. Read on to learn about these pros and cons more in depth.

Pro: Cash value

The cash value of a universal life insurance policy can grow at a secured rate, whether pre-determined or based on a variety of investment options.⁸ You can also have more say in the method that the cash value will grow.

Pro: Flexible premiums

Depending on your present circumstances, you can scale the premiums up or down.⁹ This can make life insurance payments less stressful if you are focused on another investment in a different phase of life.

Pro: Adjustable death benefits

How you adjust your premium payments can directly affect the value of your universal life insurance policy. We recommend you make these decisions carefully, balancing short-term and long-term goals evenly. In addition to adjusting your premiums, you can also modify the death benefit value.¹⁰

Con: Interest rate may be lower

If your investment choice does not pay off, you will be subject to the minimum interest rate instead.¹¹

Con: Doesn't have a guaranteed level premium

Some people find peace knowing their premiums will not change over time. Universal life insurance may not guarantee a fixed premium payment, which may be unsettling for some consumers.

Con: Skipping payments or making minimum payments can negatively impact cash value

While you do have the flexibility to skip premium payments or scale the premiums down, it may not be the best long-term decision. If this becomes a habit, the premium payments in your plan may rise.¹²

Whole life insurance vs. universal life insurance

When deciding between universal and whole life insurance, it's important to fully understand what universal life insurance is and how it works. By this point, we have outlined that universal life insurance has greater flexibility in premium payments. However, some people prefer the stability that whole life insurance can offer.

life insurance may be a better choice than universal life insurance if you're looking for a plan with less variables and more stability. And if you only need coverage for a specific length of time, you may want to consider term life insurance.

Which life insurance policy should I choose?

Choosing the right life insurance plan is a big decision. It's important to consider factors such as your coverage needs, dependents, goals, and budget. If you want life insurance that has adjustable premiums, universal life insurance may be right for you. But if you're look for a less complex plan, you may consider whole or term life insurance.

Get a quote for life insurance

Universal life offers lifelong coverage and flexibility to adjust your premiums and death benefit. While Aflac doesn't have universal life insurance, we do offer whole life and term life insurance plans that come with reasonable premiums and extensive coverage suited for each policyholder's unique needs. Start chatting with an agent today to learn more about our policy options and get a quote.

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