The Hidden Benefits of Universal Life Insurance

iQuanti: Universal life insurance is a type of permanent life insurance. In other words, the policy will cover you for your entire life assuming required premiums are paid and all requirements of keeping the policy active are fulfilled. Some universal life insurance policies offer cash value and flexibility with premiums and death benefit that give universal life insurance truly unique benefits that aren't always well-known. 

You can use cash value to pay premiums 

Universal life insurance policies often come with cash value features, which are built up as premiums are paid. After you've built up an adequate amount of cash value in your life insurance policy, one of the ways to use that is to pay your premiums(1). 

Cash value features may also come with guaranteed growth rates and some companies even offer non-guaranteed interest which can be added to the cash value, used to pay premiums, or given to policyholders as cash. There are many ways you can use the cash value, and different types of policies may offer different strategies for accumulating cash value. It never hurts to explore your options with a professional financial planner.  

Flexible premiums 

If you have a policy that offers flexible premiums, that means you can control the amount of your payments and the frequency within certain limits. The cost of your insurance is calculated on a monthly basis and charged to your policy, and policyholders have the option to pay more, with the surplus accumulating as interest-bearing cash value. As this cash value builds, it can be used to cover insurance costs without reducing the death benefit. But without sufficient cash value to cover the cost of insurance, the policy will lapse which can result in severe tax consequences. 

Note: if you adjust the amount or frequency of your premiums, this has a direct effect on the cash value you are building. The policy's cash value increases most quickly when you make regular premium payments in the early years of the policy. 

Adjustable death benefit 

Many universal life insurance policies allow you to adjust the death benefit within certain limits, which can be useful in case your needs change and you require additional coverage. Other permanent life insurance policies, such as whole life policies, don't offer the same flexibility.  

The bottom line

Many people seek permanent life insurance for stability: universal life insurance offers a unique benefit in that it gives you flexibility and control with your policy. The option to utilize the cash value that accumulates over time as you pay premiums is another layer of financial security that you can count on if you ever need immediate cash(1). Ultimately, universal life insurance is a great tool that can be used for multiple purposes, and offers more control of your coverage, while requiring more active management than other life insurance options.  

(1)Utilizing the cash value through policy loans, surrenders, or cash withdrawals will reduce the death benefit; and may necessitate greater outlay than anticipated and/or result in an unexpected taxable event. Assumes a non-Modified Endowment Contract (MEC).