Universal Life Insurance

What is Universal Life Insurance?

A universal life insurance is a type of life insurance that offers whole life coverage to the policyholder along with cash value accumulation benefits. This allows the policyholder to lead a peaceful life knowing that their family will be protected in the event of their unfortunate demise. While these plans may look similar to whole life insurance plans, they offer more flexibility regarding premium payments and the policy's death benefits. Also, a universal life policy allows you to withdraw cash in case of an emergency once the policy has accumulated some cash value.

How Does a Universal Life Insurance Plan Work?

Let us understand how universal life policy works with the help of an example:

Swati, a non-smoking female, pays flexible premiums, part of which goes towards her life insurance coverage and part into a cash value account that grows over time with interest. This cash value acts like a savings account, which Swati can borrow against, giving her financial flexibility. She can adjust her death benefit and premiums as her needs change. This combination of life insurance protection and a savings component makes Universal Life Insurance a versatile choice for long-term financial planning.

What are the Features of Universal Life Insurance Policy?

Universal life insurance is similar to a whole life insurance and has the following features:

• Flexible Premiums: Allows you to adjust your premium payments as needed, either increasing or decreasing them over time.

• Cash Value Accumulation: Part of your premiums goes into a cash value account that grows with interest, offering tax-deferred savings.

• Adjustable Death Benefit: You can increase or decrease the death benefit to match your changing life circumstances, with some policies requiring new underwriting for increases.

• Access to Cash Value: You can borrow against the policy's cash value, providing financial flexibility for unexpected needs.

• Lifelong Coverage: These plans provide permanent life insurance coverage as long as premiums are paid, making it a long-term financial planning tool. 

What are the Different Types of Universal Life Insurance? 

Here is a list of the different types of universal life insurance policies:

• Guaranteed Universal Life (GUL): Focuses on providing a guaranteed death benefit with lower cash value accumulation, offering stable premiums.

• Indexed Universal Life (IUL): Links cash value growth to a stock market index, like the S&P 500, allowing potential for higher returns while still protecting against market losses.

• Variable Universal Life (VUL): Offers investment options within the policy's cash value, allowing for potentially higher returns, but with increased risk depending on market performance.

What are the Benefits of Universal Life Insurance Policy?

A Universal Life Insurance Policy is a flexible financial product offering life cover, savings, and investment opportunities. Popular among individuals who want both protection and the potential for long-term wealth creation, this policy type comes with several key benefits.
Here is a list of benefits of buying a Universal Insurance Policy in India:

• Guaranteed Death Benefit: In the unfortunate event of the policyholder's death during the policy term, a fixed death benefit is paid to the nominee. This amount is paid regardless of the policy's accumulated cash value. It can help the family manage essential financial obligations such as loan repayments, rent, children's education fees, or day-to-day expenses.

• Flexible Premium Payment Options: One of the standout features of universal life insurance is its flexibility. You can choose a premium payment schedule that suits your financial situation. Whether you prefer monthly, quarterly, semi-annual, or annual payments—or even a one-time lump sum, you can tailor the payment mode and term to your needs.

• Wealth Creation Opportunities: Alongside life coverage, these policies allow you to build a corpus over time. The cash value component of a universal life insurance policy grows with contributions and interest, helping you accumulate savings. This wealth can be used later for primary life goals like your child's higher education, marriage, or retirement needs.

• Loan Facility: Universal life insurance plans typically offer the option to borrow against your policy's cash value. In times of financial emergency, such as unexpected medical expenses or temporary loss of income, you can access funds without surrendering the policy.

• Tax Benefits: You can claim life insurance tax benefits on the premiums paid under Sections 80C and 80D of the Income Tax Act, 1961. Also, your family can receive a tax-free death benefit under Section 10(10D) per the prevailing tax laws.

These types of plans have extra fees. The saving aspect of universal life insurance has some risks. Study thoroughly before buying these policies, and do not buy any plan without carefully reading the T&Cs. 

What are the Advantages and Disadvantages of a Universal Life Insurance Policy?

Let us take a look at the advantages and disadvantages of a universal life policy:

Note: You can use the life insurance calculator to check the applicable premiums for your profile.

What is the Difference Between Universal Life vs. Whole Life vs. Term Life Insurance?

Here's a comparison of Universal Life, Whole Life, and Term Insurance plans:

Factors to Consider Before Buying Universal Insurance Policy in India

Here is a list of factors you should consider before buying a universal insurance policy in India:

• Age and Health: The premiums increase with the increasing age and decreasing health conditions of the individual. Therefore, you should consider buying universal insurance early to secure large life cover at affordable premiums.

• Sum Assured: The sum assured will be payable to your family in case of your death. Thus, the life cover amount should cover your family's needs in your absence and help them live a financially stable life.

• Premiums: The premiums of your universal insurance policy should be within your budget to avoid any future lapses. A large premium amount can strain your financial conditions and lead to policy lapses.

• Wealth Creation: You should always ensure that the applicable interest for the universal insurance policy's wealth creation component is enough to meet your financial needs.

• Risk Appetite: Review the list of available funds and select the suitable fund option according to your risk appetite.

• Applicable Charges: Always read the policy documents to check the applicable charges, such as surrender, mortality, or fund management charges.

• Customisations: You should always customise your universal insurance policy details to fit your needs, like selecting the right riders and options for the suitable premium payment and benefit payout options.

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