Five Things To Know Before Buying Universal Life Insurance

Universal life insurance offers flexibility and long-term coverage, making it an attractive option for many. Unlike term life insurance, universal life insurance combines a death benefit with a cash value component that grows over time. However, before committing to a policy, it’s important to understand the key features and risks involved. The best universal life insurance can be a great choice, but only if it aligns with your financial goals and needs.

Understand the premium structure:

One of the main advantages of universal life insurance is its flexible premium structure. Unlike traditional whole life insurance, you can adjust your premium payments based on your financial situation. While this flexibility allows you to increase or decrease payments, it also means that failing to pay the required premiums could affect your coverage or cause your policy to lapse. Ensure to understand the minimum premium requirement and how adjustments will impact the cash value and death benefit.

Know how the cash value grows:

Universal life insurance policies accumulate cash value, which grows over time based on the interest rates set by the insurer. However, these interest rates can fluctuate, meaning that the growth of your cash value may not always be predictable. While it can offer a financial cushion, it’s important to assess how the cash value is managed and how much growth you can realistically expect over the life of the policy.

Be aware of fees and costs:

Universal life insurance policies often come with various fees, including administrative charges, cost of insurance, and mortality charges. These fees can reduce the overall value of your policy and affect the cash value growth. Understanding the fee structure and how it can impact your policy’s performance is important.

Consider the death benefit flexibility:

One of the key benefits of universal life insurance is the flexibility it offers with the death benefit. You can choose to increase or decrease the amount of coverage depending on your needs. However, be mindful that adjusting the death benefit may affect the premium payments or the policy’s cash value. It’s important to ensure that any changes align with your long-term financial objectives.

Review the policy’s loans or withdrawals options:

A unique feature of universal life insurance is the ability to borrow against the policy’s cash value or make withdrawals. While this can be a helpful option in times of need, it’s essential to understand the impact of taking loans or withdrawals. Any outstanding loan balance will reduce the death benefit, and withdrawals can affect the policy’s cash value growth.