There are various types of life insurance but the ones that are mostly opted for are whole life, term and universal life insurance. Term life insurance has a fixed term. Whole life and universal life insurances have a term equivalent to the policy holder’s lifetime. There are a few differences between whole life and universal life insurance.
Universal life insurance or permanent insurance offers two options in how the death benefits would be paid, there are choices in the cash accumulation portion and you could opt for flexible premiums. None of these three attributes are found in whole life insurance. Every type of insurance has its share of positives and negatives. Eventually, which insurance policy or type you choose should depend on what you want or what suits your needs, goals and present situation.
Here is a brief assessment of universal life insurance pros and cons which should help you to decide if it is good for you. Weigh the pros and cons and determine what you should opt for.
1. The flexibility of premiums is one of the biggest advantages of universal life insurance. You can increase or reduce the amount of the premiums depending on your affordability. Anyone can have some financial problems from time to time. When in a financial crunch, you can pay lower premiums and you can compensate the same by paying higher premiums when you can afford them.
2. With most types of insurance, you have no control on interest strategies. With universal life insurance, you can decide how your money is going to be invested. In other words, you can choose on what grounds your interests would be determined. You can choose guaranteed interests rates, you can opt for yearly interest plans, a general interest or you can opt or a certain equity index to influence your interest. In every case, you will have a safety net beneath which your interest would not drop but it would get appreciated if the chosen investment type tends to get appreciated.
3. Universal life insurance provides coverage for your entire life. No matter how long you live, you will have your coverage and your beloveds would have financial security, as long as your premiums are paid.
4. You can use the insurance policy for cash borrowing should you run into financial troubles. You don’t have to cancel the policy or it wouldn’t lapse. The used portion of the investment or the cash borrowed would be deducted from the total amount of the premiums paid and your coverage would be adjusted accordingly.
5. Tax deference is another advantage of universal life insurance. The death benefits and the cash value investments are tax deferred. If you take a loan against your insurance, that too has the same advantage.
6. There is also a feature that allows your premiums to be paid by the insurance company from your accumulated cash value to keep the policy alive if you have troubles making even a small payment towards your premium.
1. Universal life insurance is usually more expensive than other types of life insurance. The total cost of the insurance or premiums, fees for allocation and other charges are all higher than whole life or term life insurance.
2. Some universal life insurance policies have a clause that restrict or fix the mortality payment, which is known as the level cost of insurance. Such policies are not the best or the most rewarding. The yearly renewable option is a much more favorable term. It costs less too if you are young.
3. While accumulated cash can be used for loans and you can attend to your financial needs, the loan has to be paid back and the interests that would be charged on the loans are not really encouraging. Some universal life insurance policies have a clause that will end up reducing your death benefits every time you choose to borrow some cash against your accumulated cash value.
4. Universal life insurance policies demand some time and ongoing effort from the policy holder. You can invest in other types of insurance, keep the policy in a drawer and forget about it until the time you need it. With universal life insurance, you have to monitor the accumulated cash values, you must know a fair bit about investments and you would have to make rational choices. Such decisions often require some knowledge about insurance and investments.
5. While you can choose your favored investment strategy and accordingly your policy would accrue the interests, the rates of interests are not very rewarding. Unlike term life insurance or even whole life insurance, universal life insurance has a conservative interest rating system. You will not be able to make a ton of money with universal life insurance. Treat it as a financial security and not as an investment option.