A 2023 poll found that 52% of U.S. adults own a life insurance policy. However, some also admitted the coverage they currently own is insufficient. This is particularly true for younger adults, especially those with children.
So, it’s no wonder that as many as 39% of consumers plan to buy life insurance within the following year. Thus, if you don’t have coverage, now’s the best time to consider getting one.
One of your primary options is universal life insurance. It costs more than the temporary term life insurance but for several good reasons.
We’ll tell you about those reasons and why you should opt for a universal life policy, so read on.
1. Coverage for Your Entire Life
Universal life insurance is one of the two primary types of permanent life insurance. The other is whole life insurance.
Permanent life insurance policies typically provide lifelong coverage for the insured. Life insurance companies design them to last for as long as the policyholder is alive. So this type of policy covers you beyond your golden years, provided you keep it active.
That permanence can be especially beneficial, considering that Americans are living longer. For instance, in 1950, the average life expectancy in the U.S. was only 68.14 years. However, this has continuously risen; as of 2023, it stands at 79.11 years, an increase of over a decade.
By contrast, term life insurance is temporary, usually only lasting 10 to 30 years. Once it reaches its expiration date, it stops providing you with coverage. Some insurers let you extend it before it expires but, in return, expect to pay higher premiums.
2. High Coverage Amount
Universal life insurance costs more than term life insurance because of its permanence. However, another reason is that it provides a higher coverage amount that the buyer can often set.
For example, most universal life insurers offer death benefits or face values of $500,000 to $1 million. Some even provide jumbo life insurance, usually catered to high-net individuals. It has a much higher payout of $1 million to $100 million or more upon the policyholder’s death.
The face value of a life insurance policy is its equivalent dollar amount. It’s the amount the insurer pays your beneficiaries in the event of your passing. So if your policy’s face value is $1 million, that’s the amount your beneficiaries get when you pass away.
3. Adjustable Face Value
Universal life insurance allows you to adjust your policy’s face value. This is why it’s also known as adjustable life insurance.
With this feature, you can increase and reduce your policy’s face value based on your needs. An example of when to consider increasing it is if you start earning significantly more. Likewise, you may do the same as your family grows.
On the other hand, you can decrease your policy’s death benefit if you earn less or have already retired. You can also do this once your kids become adults or you have fewer dependents.
Just remember that adjusting your policy’s face value also affects your premiums. If you increase the death benefit, your premium payments also go up. Conversely, decreasing it means lowering your premium payments.
4. Savings Component
Universal life insurance offers a cash value component, usually via a savings account. The money that funds this account comes from your premium payments. So each time you make a premium payment, a portion goes toward your policy’s cash value component.
Like a typical bank savings account, your policy’s savings account also earns interest. How much it is depends on your policy’s interest rate or the current market.
The cash value can grow over the years, provided you keep paying your premiums. So, not only does your universal life insurance policy cover you for life, but it also lets you save.
That’s another reason universal life insurance is more expensive than term life insurance. The latter only provides a death benefit, not a savings component.
5. Borrow or Withdraw From Your Policy
Another perk of having universal life insurance is that you can take out a loan against it. You can do this once your policy’s cash value has grown and has accumulated enough funds.
You can borrow against your universal life insurance policy without tax implications. To top it off, these loans often come with interest rates lower than traditional bank loans.
Borrowing against your policy’s cash value component requires no special qualifications. In most cases, you must only complete a loan application form and prove your identity. So, you don’t have to worry about your credit score, as it doesn’t affect your approval.
That’s because you’re technically “borrowing” money that’s yours. However, you should still repay your loan because if you don’t, it will reduce your policy’s face value.
Alternatively, you may be able to “withdraw” a part of your policy’s savings instead of taking out a loan. In this case, you don’t have to repay the money you took. However, your insurer deducts this, plus interest, from your death benefit when you die.
You can also surrender your universal life insurance policy to get its entire cash value. If you do this after its surrender period, usually 10 to 15 years, you don’t have to pay surrender charges. However, this method means canceling or terminating your policy.
It’s also vital to note that you, the policyholder, can only access your policy’s cash value. This is why you should take advantage of it when you’re still alive and use it for whatever expenses you want. Because when you pass away, your insurer won’t add it to your policy’s death benefit.
Enjoy These Universal Life Insurance Benefits
As you can see, universal life insurance provides permanent coverage. It also lets you purchase a higher face value which you can then increase or reduce based on your situation. Best of all, it allows you to access a cash value component and use its funds to enjoy your life more.
Those should be good enough reasons to consider a universal life insurance policy.
Did you like this informative guide? If so, you should check out our related post on how much life insurance costs on average!
