Universal life insurance is perhaps the least understood of all life insurance products. That is at least partly due to the fact that there are several different types of universal life insurance policies. The purpose of this article is to provide a basic understanding of how universal life insurance works, along with a brief summary of different types of universal life insurance policies available in the marketplace.
In short, universal life insurance is a type of permanent life insurance policy that combines features of both permanent and term life insurance policies. It provides flexibility in premiums, death benefit amounts, access to cash value growth, and how cash value accumulates. Universal life insurance policies are an excellent option for individuals looking for permanent life insurance coverage that can be customized to fit their needs.
Universal life insurance can be divided into three main types: guaranteed universal life, indexed universal life, and variable universal life.
Guaranteed Universal Life
Guaranteed universal life insurance (GUL) is a type of universal life policy in which the death benefit and premiums remain the same for the duration of the policy – like a lifetime term life insurance policy. Also, like term life insurance, and unlike other types of universal life, this policy does not typically provide access to cash value. Guaranteed universal life insurance usually has the lowest guaranteed premium among all types of universal life insurance.
Indexed Universal Life
Indexed universal life insurance (IUL) is a type of universal life policy that provides a death benefit and access to cash value growth. This policy allows owners to participate in the growth of the stock market while protecting against stock market losses. The policy’s cash value growth is based on an index such as the S&P 500 but is subject to growth limitations such as participation rates and caps.
Variable Universal Life
Variable universal life insurance (VUL) is a type of universal life policy that also provides a death benefit and access to cash value growth. However, this policy allows owners the option to invest directly into the market in such things as mutual funds, stocks, and bonds. Policy owners are completely responsible for managing the investments that are in these subaccounts that are part of their life insurance policies. The performance of the investments in the policy’s subaccounts then determines the growth of the cash value of the policy. Variable universal life insurance has unlimited cash value growth potential, but also the risk of lapsing significantly earlier than planned for if the market declines too much—despite paying all required premiums.
Making the Right Decision
Choosing the right type of universal life insurance policy can be overwhelming. It’s important to consider your financial goals, as well as your current and future needs, when selecting a policy. It’s also important to research the different types of universal life insurance policies and find a policy that fits your budget and plan while offering the features you need.
At CEG Life Insurance Services, our experienced team of professionals can help you understand the different types of universal life insurance policies and determine which one is right for you and your needs. We can offer personalized advice and help you choose the best policy for your financial goals.