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 woman, pays flexible premiums. Some of this money goes toward her life insurance and some goes into a cash value account that grows with interest over time. This cash value is like a savings account that Swati can borrow from, which gives her more options for how to spend her money. She can change her premiums and death benefit as her needs change. Universal Life Insurance is a flexible choice for long-term financial planning because it combines life insurance with a savings account.

What are the Key Features of Universal Life Insurance Policy?

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

• Flexible Premiums: You can change how much you pay for your premium at any time, either going up or down over time.

• Cash Value Accumulation: Some of your premiums go into a cash value account that earns interest and lets you save money without paying taxes on it.

• Death Benefit That Can Be Changed: You don't have to stay with the same amount of coverage for the rest of your life. You can change the death benefit amount as your responsibilities change. In some cases, getting more coverage may mean getting new medical underwriting.

• Coverage for Permanent Life Insurance: The goal of these plans is to last for your whole life. Your life insurance policy will stay in effect as long as you pay the premiums and keep the policy funded.

• Cash value accessibility: You can access the accrued cash value through withdrawals/loans. Unpaid loans will decrease the final death benefit that is paid to the beneficiaries. 

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): Offers the peace of mind of a guaranteed death benefit, fixed, lower premiums, and little cash value growth.

• Indexed Universal Life (IUL): This type of life insurance links the growth of cash value to market indices like the S&P 500. This means that the cash value has a better chance of growing while also protecting against market losses.

• Variable Universal Life (VUL): This type of policy has the highest risk and return potential. Policyholders can put cash value into sub-accounts that work like mutual funds.

• Traditional Universal Life: A flexible, standard policy that guarantees a minimum interest rate on the cash value.

What are the Benefits of a Universal Life Insurance Policy?

Below are the benefits of Universal Life Insurance Policy:

• Guarantee of Death Benefit
  In case the policyholder dies during the policy term, the nominee will get an amount of money as a death benefit. This amount is paid regardless of the policy's cash value. It can help the family pay their rent, loans, school fees for their children, or other essential bills.

• Flexible ways to pay your premiums
  One of the best things about universal life insurance is that you can change it to fit your needs. You can pick a payment plan that fits your budget. You can pay once a year, once a month, once a quarter, or once every six months. You can also pay all at once. You can also pick how long you want to pay.

• Opportunities to create Wealth
  These rules keep you safe and help you build up a nest egg over time. The cash value part of a universal life insurance policy grows with contributions and interest, which helps you save money. You can put this money away for big things in life, like your child's college education, marriage, or retirement.

• Loan Options
  In most cases, you can borrow money against the cash value of your universal life insurance policy. If you have an unexpected medical bill or lose your job for a short time, you can get money from your policy without giving it up.

• 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?

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 is payable to your family in case of your death. That is why it is important that you choose a sum assured that will cover your family's financial needs in your absence.

• 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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