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Universal Life 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

What Is Universal Life Insurance?

Universal life insurance is a type of permanent life insurance plan that has an investment function and typically has 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.

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 may be a good choice if you are looking for permanent coverage, greater adjustability, and more awareness of how your cash value grows.

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How Does Universal Life Insurance Work?

Some 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 Two common types are indexed universal life insurance and variable universal life insurance.6

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.

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.

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

Universal vs. Whole Life Insurance

When deciding between universal and whole life insurance, one must 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.

Whole life insurance may be a better choice if you are looking for a plan with less variables and more stability. Term life insurance is also an option if you only need coverage for a specific length of time.

Which Life Insurance Policy Should I Choose?

Choosing the right life insurance plan is a big decision. Aflac does not offer universal life insurance, but we can point you toward our term and whole life insurance plans if you have different coverage goals in mind. Chatting with an agent about your options may make this decision easier.

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