Universal life insurance, with its flexibility to adjust premiums and coverage as your needs change, is a good choice among consumers looking for permanent* insurance because of its many unique features and built-in benefits.
As with other permanent life policies, universal life provides a financial benefit upon your death with the potential to build cash value over time. Other built-in options and features include:
Payment flexibility
With a universal life policy, your premium payments may be increased, decreased, or even skipped, depending on such factors as the amount of premium you have paid into the policy, the policy value, any loans or withdrawals, and the current interest rate. This can be an ideal option if you like the payment flexibility of being able to pay higher or lower premiums as your financial needs change. And while your policy value may increase or decrease accordingly, you can still maintain your life insurance coverage, so long as the cash value remains positive.
Adjustable death benefit
The death benefit of your universal life policy may be adjusted (within the plan limits) without having to buy a new policy. This means you can increase the face amount of your policy as your financial and life circumstances change. Generally, you can lower the death benefit at any time after the policy has been in force for a few years (each policy is different, so please check the policy language), but if you want to raise the amount of coverage, most insurers will have you go through the underwriting process again, which may include a new medical exam.
Death benefit options
Universal life insurance plans may feature one of two distinct death benefit options - level or increasing. Under the level option, the death benefit is level to the face amount of your policy. This means that when you die, your beneficiary receives a level death benefit. Under the increasing option, the death benefit is equal to the face amount plus your policy's account value. So if you have a $300,000 policy with $50,000 of account value and you were to die, your beneficiary will receive $350,000.
Lapse protection
Some universal life policies contain built-in lapse protection. This guarantees that your policy will remain in force for a specified period of time - up to a set number of years or up to your entire lifetime, so long as the required premium amounts are paid on time into the policy. However, loans, partial surrenders, policy changes, or delinquent premiums may affect the length of the lapse protection and may cause loss of the protection itself.
A guaranteed minimum rate
With a universal life policy, you're provided with a guaranteed minimum crediting rate. This means that any un-loaned policy value will be credited with a rate that will never fall below the contractually guaranteed minimum, making this type of policy a competitive insurance value that's often used when saving for retirement or supplementing income during your retirement years.
There are different types of life insurance policies available to support a variety of needs. Learning about some of the key features and options of a universal life insurance policy will help you decide whether this is the right coverage for your situation.
*As long as required premium payments are timely made.
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