You may be wondering if universal life insurance is right for you. Universal life insurance can provide security for you and your loved ones, in addition to serving as a saving and investment tool. These capabilities make this type of policy immediately appealing. However, a universal life insurance policy can also be accompanied by some unpredictability. Just as you should with any big financial decision, we recommend conducting some research first to assess whether or not this option supports your long-term financial goals.
Exploring the Types of Universal Life Insurance
There are three types of universal life insurance: universal life, indexed universal life and variable universal life. They all accumulate cash if properly funded and deliver an equally good death benefit. Additionally, a cash value can be accessible through withdrawals or loans, yet there is no guaranteed rate of return. Expenses are explicitly stated, rather than hidden by a net rate of return.
These types of universal life insurance differ in a few notable ways:
- Universal life only provides the option to save at a specified interest rate. And remember, this interest rate can change over time.
- Variable universal life insurance provides investment options that include subaccounts, which are similar to mutual funds, alongside a fixed account with a specified interest rate.
- Indexed universal life insurance provides a complex way to approximate what a stock market index would have returned. It limits your rate of return in healthy years but does not reduce the cash value when the market declines.
Common Issues with Universal Life Insurance Policies
It’s possible you’ll encounter some obstacles with a universal life insurance policy.
First, your rate of return may be lower than hoped for. In that case, you would need to increase your premium contribution to the policy to make up for the lower rate of return.
Another common issue can arise when individuals do not keep careful tabs on their policy. If you wait too long to increase your contributions, the policy may become too expensive for your financial abilities. If it’s not receiving the minimum contributions required, the policy cannot remain in force.
What Type of Universal Life Insurance is Best for You?
There are several factors you’ll want to monitor with your universal life insurance policy to make sure it works as well as possible. While the overall market is out of any individual’s control, choosing the right type of universal life insurance can help protect your assets.
- A universal life insurance policy can help you take advantage of high interest rates. It’s suggested to review this type of policy with your financial advisor on a regular basis.
- An indexed universal life insurance may be appropriate when interest rates are not high, but the stock market is expected to do well.
- A variable universal life insurance policy may be incorporated into a comprehensive, tax-efficient, accumulation and distribution strategy with maximum investment flexibility. It’s often recommended to review and update this policy with a financial planner.
- If you need permanent life insurance and want a guaranteed level premium, a whole life insurance policy might make more sense than universal life insurance.
Universal life insurance might make sense in some scenarios and not so much in others. It’s imperative you keep a close eye on your policy to ensure it continues supporting your overall goals and financial abilities. Still unsure? Reaching out to a financial planner can help you decide what kind of life insurance policy is ideal for your individual portfolio.