Universal Life Insurance

Universal life insurance (UL) is a type of permanent life insurance that provides both a death benefit and a cash value component. Unlike term insurance, which only pays a benefit if the insured passes away during the policy term, UL allows policyholders to adjust their premiums and death benefits over time. This flexibility makes it an attractive option for those looking to adapt their coverage as their financial situation changes. For instance, if you initially choose a $250,000 death benefit and later decide to increase it to $500,000, you can do so, subject to underwriting guidelines.

One of the key features of UL is its cash value accumulation, which grows over time based on a credited interest rate set by the insurer. For example, if you pay $200 a month and the policy has a credited interest rate of 3%, your cash value could grow to approximately $12,500 over 10 years, assuming no withdrawals or loans are taken. However, it’s essential to remember that the cash value growth is not guaranteed, and fees can affect returns, leading to misconceptions that all UL policies are equally beneficial.

A common mistake is viewing UL solely as an investment. While it does have an investment component, the primary purpose is life insurance protection. Many policyholders focus too much on cash value and forget that the death benefit is the main function of the policy. To avoid pitfalls, it’s crucial to regularly review your policy’s performance and ensure that it aligns with your financial goals.

In summary, universal life insurance offers flexibility and a combination of life coverage and cash value growth. It’s ideal for individuals who want to tailor their insurance to their evolving needs while also building savings. Consult with a financial advisor to determine if UL is the right fit for your long-term financial strategy.