What is universal life insurance?
Universal life insurance is a type of permanent life insurance that offers the flexibility to change your death benefit and adjust your monthly premiums. Like whole life insurance, universal life coverage can last for your lifetime and build cash value that you can borrow against while you're alive. The difference between whole life and universal life insurance is that, as your financial situation changes, you can increase or decrease your premiums, or death benefit payout amount. You can also skip premium payments as long as the cash value will cover the cost of your insurance for that month.
How does universal life insurance work?
Universal life insurance covers you for your lifetime as long as you pay your premiums. It's sometimes referred to as cash value life insurance because the policy has a savings account built into it. As the savings component grows, you gain more flexibility, such as the ability to change your premium amounts.
What are the benefits of universal life insurance?
There are several advantages to a universal life insurance policy:
Flexible premiums
As the cash value component of your policy builds, you can adjust your premium payments and even use it to pay your monthly premium. Eventually, your cash value policy could build into a zero-cost policy, where all premiums can be paid from the built-up cash value and keep the same payout amount (death benefit).
Length of universal life coverage
Unlike term life insurance, which only lasts for a set period, a universal life insurance policy lasts for your lifetime as long as you continue to pay your premiums.
Tax-free growth
The payout to your universal policy's beneficiary is typically tax-free, as is the growth within your policy's cash value component.
Loan collateral
You can borrow money from your insurer using the cash value as collateral. Keep in mind that policy loans are subject to interest rates that are set by your insurer. Learn more about life insurance loans.
What does a universal life insurance policy cover?
Your beneficiaries can use your universal life policy's death benefit as they wish, though many families use their funds to pay for large expenses or life events. Some common expenses include:
- Loss of income: Your coverage can make up for the loss of your income, helping your family pay bills and everyday living expenses.
- Mortgage costs: Your family can use your death benefit to pay the mortgage or even pay it off early, depending on your coverage amount.
- Estate planning: You can use your coverage to leave money behind for your adult children, or to take care of any remaining debt you have. Learn more about life insurance and estate planning.
- Educational needs: Your spouse or children can use your policy's funds to pay tuition and other educational expenses.
Is universal life insurance right for me?
Universal life has unique benefits, like flexible premiums. However, it's more complicated than term or whole life so it's best suited for those who have changing financial needs over time and want to be able to adjust their coverage and premiums. For example, one key difference between whole and universal life insurance is that the interest on a universal life policy's cash value varies based on market conditions (though you receive a guaranteed minimum interest rate). So your policy's cash value is less predictable but has the potential to grow faster.
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Compare the Best Universal Life Insurance Companies
| Company | Learn More |
|---|
| #1 | Pacific Life » 4.9 U.S. News Rating | Compare Quotes » |
| #2 | Northwestern Mutual » 4.7 U.S. News Rating | Compare Quotes » |
| #3 (tie) | Guardian Life » 4.5 U.S. News Rating | Compare Quotes » |
| #3 (tie) | Protective » 4.5 U.S. News Rating | Compare Quotes » |
2 more rowsQuick Introduction to Universal Life Insurance
| Age (yrs) | Male ($ per month) | Female ($ per month) |
|---|
| 25 - 35 | $63 - $103 | $54 - $83 |
| 35 - 45 | $103 - $150 | $83 - $130 |
| 45 - 55 | $150 - $244 | $130 - $207 |
| 55 - 65 | $244 - $427 | $207 - $337 |
How Much Is a Million-Dollar Life Insurance Policy? The average cost for a million-dollar life insurance policy is anywhere from approximately $50 to more than $1,000 a month, depending on your age, health, annual income, policy type and other factors.
What is the best age to buy universal life insurance? ›
There really is no best age at which to buy universal life insurance. It depends on the person and their coverage needs, says Bridge. “It's cheaper to buy at a younger age, but that's true of all life insurance products.”
What is the bad side of IUL? ›
With an IUL, the amount of your premium isn't fixed—and it'll rise as you age. (Sorry to be the bearer of bad news, but older people have a higher chance of death.) That means you run the risk of having the life insurance policy lapse if the premiums get too high to be covered by your cash value or other savings.
What is better than a IUL? ›
Whole life insurance provides the stability of a fixed premium, and it's generally more affordable than indexed universal life insurance.
Why not to buy an IUL? ›
Some of the drawbacks include caps on returns and no guarantees as to the premium amounts or market returns. An IUL insurance policy may be canceled if you stop paying premiums. IUL policies are generally best for those with large up-front investments who want options for a tax-free retirement.
Can you cash out an IUL? ›
It is also important to remember that taking money out of your IUL policy may affect your death benefit. If you take a withdrawal, the death benefit will be reduced by the withdrawal amount. If you take a loan, the death benefit will be reduced by the loan amount, plus interest.
How much does a $5 million life insurance policy cost? ›
The cost of a $5 million policy depends on the type of policy and the many factors involved in the application and underwriting processes. It can cost anywhere from about $3,000 in annual premiums for a 20-year term life insurance policy to $6,000 in annual premiums for a 30-year term.
What age is too late to get life insurance? ›
Whole life insurance policies may be easier to obtain than term life insurance, even when you're older. Many life insurance companies sell new policies to applicants up to age 85 or 90. Your need for life insurance may be less if you don't have any debt or dependents who rely on your income.
Disadvantages of Universal Life Insurance
Policy loans and withdrawals deplete your cash value and could cause your policy to lapse without extra premium payments.
What is the disadvantage of universal life insurance? ›
Universal policies typically don't have fixed interest rates, so they are less predictable than whole life insurance policies. If you miss a payment on a universal life policy or don't contribute enough to the cash value, you may end up making several large payments to keep the coverage.
Who should buy an IUL? ›
Typically, IUL policies are best for high-net-worth individuals who want to lower their taxable income.
What is the average return on an IUL? ›
A minimum percentage return is guaranteed, but this is offset by capping out at a top end of return, typically between 8% and 12%. This may make IULs more attractive as an investment than whole life insurance, which earns a smaller rate of return.
How much money can I put in a IUL? ›
There is no contribution limit on an IUL policy, unlike an IRA or 401(k).
Is 529 better than IUL? ›
Index universal life insurance can be more expensive but can include a savings feature to support college funds, while a 529 plan can count as an asset when applying for financial aid but allows for tax-deferred savings and tax-free withdrawals.
