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Universal Life Insurance: an Affordable Alternative

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Universal life is something of a hybrid between Term and Whole Life. It is a form of permanent life insurance with a growth component that is dependent on interest rates in the market. If written properly, it can be significantly less in premium than a whole life policy and yet still be level to the age of 121.

How does Universal Life work?

With universal life, you have two components, a savings component and the insurance component. Each month, your premium goes into a savings account, and the company adds interest. Then the funds necessary to pay the cost of your insurance and any applicable fees are withdrawn. Universal Life has three possible premium modes. They are minimum, target and modal. The minimum premium is that amount that must be paid to keep the policy in force for at least 15 years. That price will be very close to the price of Term for the same face value. At the end of that time period, you will not lose the insurance, but you will have to increase your premium to keep it. The target price both keeps your premium level and allows your policy to build cash value for several years—possibly 20 or 30, depending on your age when you take it out. Modal is generally the best way to pay your premium. With most companies, if you pay the modal premium—which is still less than whole life—you have a level policy to age 121. Some companies will even guarantee a level policy if it is based on modal premium.

The Difference Between Universal and Whole Life

Universal insurance is "permanent" insurance in that it can last for your entire life, but it is not "whole" life. Whole life is level for your entire life, builds cash value, and would pay if you lived to be 200 years old. Universal life, on the other hand is considered a "flexible" policy. Although it rarely happens if your premium is based on modal, the company can change your premium if either the interest rate or the cost of insurance changes. As with Whole Life, your premium stops at age 100, but you are still insured to age 121. During those last 21 years, the company uses the savings in your policy to pay the cost of insurance. Consequently, your insurance will be exhausted at the age of 121. If you live to 122, you won't have insurance. Of course, most people aren't worried about living beyond 100 years.

Pros and Cons of Universal Life



If you want the benefits of whole life insurance but lower premiums, take a look at Universal Life. Our pre-selected companies will provide you with quotes and match you with an agent in your area who will be qualified to give you the best advice. Your family could be protected within just a matter of days.