Are you considering a universal life insurance policy? But, you have been hesitant because you are concerned about the high cost of universal life coverage.
Most people automatically associate all permanent coverage with much higher costing premiums because of the savings element.
However, today’s universal life policies offer both affordable premiums and death benefits for life.
Do you need a life insurance policy that lasts your entire life?
Then, you really should read our informative buyers’ guide on universal life insurance coverage.
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- What Is Universal Life Insurance?
- How Does Universal Life Insurance Work?
- Evaluating Universal Life Insurance vs. Term life
- Comparing Universal Life Insurance vs. Whole Life
- Top reasons for buying Universal Life coverage
- Compare Universal Life Insurance Quotes
- Best Universal Life Companies and plans
- Universal Life Insurance Calculator
What Is Universal Life Insurance?
First, we should define universal life insurance coverage and the various types of coverage available.
What is universal life insurance?
An easy way to explain universal life insurance is similar to term life insurance with an added cash value component.
A portion goes towards the insurance cost with each payment, and the remainder goes into the cash-value account.
Universal life insurance is a form of permanent coverage that offers coverage for your entire lifetime.
Universal life insurance policies are flexible and allow you to change your payment or coverage amount throughout your lifetime.
Since your coverage will last your entire lifetime, one of the disadvantages of universal life insurance is higher premium payments than term coverage.
Types of Universal Life Insurance
- Guaranteed Universal Life Insurance offers a death benefit and premium payments that do not change over time. Guaranteed universal life can also be structured at a competitive price point with no cash value with guaranteed coverage to last a lifetime.
- Indexed Universal Life allows you to allocate your cash value to either a fixed or equity index account. Indexed universal life policies usually offer various indexes to select from, such as the Dow Jones, S&P 500, and the NASDAQ.
- Variable Universal Life is a type of life insurance that provides a fixed premium and death benefit. However, this insurance policy has cash values invested in a series of sub-accounts where you can get growth or lose money depending on the market.
What is whole life insurance?
Whole life insurance is another permanent life insurance designed to provide lifetime coverage.
Whole life insurance has higher premium payments than term life and universal life insurance because it offers guaranteed lifetime coverage.
Whole-life premium payments will always remain the same, and your policy will accumulate guaranteed cash values.
How does cash value on life insurance work?
Cash values functions like forced savings account within your policy which accumulates tax-deferred over time.
These cash values can be borrowed during your lifetime but are really meant to eventually help pay for your policy as you get older.
The cheapest permanent life insurance is universal life, with guaranteed death benefits until age 90, 95, or even age 100.
If you’re looking for some sample universal life comparisons, please take a brief look at the $100,000 life insurance rates by age chart below.
$100,000 Universal Life Insurance Rates
| Age | Age 90 | Age 95 | Age 100 |
| 50 | $65 | $72 | $77 |
| 51 | $67 | $75 | $81 |
| 52 | $69 | $78 | $86 |
| 53 | $74 | $82 | $90 |
| 54 | $81 | $89 | $95 |
| 55 | $91 | $98 | $100 |
| 56 | $94 | $102 | $105 |
| 57 | $96 | $106 | $110 |
| 58 | $99 | $110 | $115 |
| 59 | $101 | $114 | $121 |
| 60 | $103 | $118 | $128 |
| 61 | $106 | $125 | $136 |
| 62 | $110 | $130 | $143 |
| 63 | $117 | $139 | $153 |
| 64 | $126 | $150 | $161 |
| 65 | $135 | $160 | $171 |
| 66 | $136 | $166 | $182 |
| 67 | $137 | $171 | $193 |
| 68 | $146 | $183 | $207 |
| 69 | $158 | $196 | $222 |
* Monthly sample universal life insurance rates by age for non-smoking males
How Does Universal Life Insurance Work?
How Does Universal Life Insurance Work?Universal life insurance features two standard plan designs. You can structure your plan to either build cash value or have no cash value accumulation.
1. Over Funded Life Insurance For Cash Value Accumulation
Universal life insurance plans can be created to accumulate excess cash values inside the policy.
After accumulating substantial cash values, you can become your own banker by withdrawing or borrowing against your life insurance policy.
Is max-funded universal life insurance a good investment?
Universal life insurance as an asset class is only a good investment when funded with more money than the cost of insurance (death protection component).
An over-funded cash value insurance policy will require you to contribute a much larger premium to build excess cash value.
So, overfunded life insurance is much more expensive?
Comparing extra premium contributions with alternative investments like mutual funds, stocks, and bonds would be best.
Which type of policy is considered to be overfunded?
The best policies to accumulate excess cash values are indexed or variable universal life coverage; these life insurance savings plans can be a great way to save for retirement.
Should I cash out my universal life insurance policy?
When taking money from your cash value, you can withdraw the funds, borrow against your policy, or surrender it (cash out).
People who cash out of their universal life insurance types no longer need coverage.
So make sure you will not need life insurance in the future if you surrender your policy.
Consider taking a withdrawal or loan against the policy rather than surrendering coverage if you need cash now, which allows you to keep your life insurance in force.
2. Minimum Premium Life Insurance With No Cash Value
Applicants who are not interested in accumulating cash values have another option!
These lifetime plans do not accumulate cash value like term insurance, but the premiums have a guaranteed no-lapse guarantee to maintain coverage until a specific age.
Your coverage will remain in force if you continue to pay the extended no-lapse guarantee premium.
This is an excellent option for people wanting the lifetime benefits of universal life insurance at a much cheaper cost!
Universal Life Insurance vs. Term Life
Most people only consider term life coverage the best option for paying inexpensive premiums.
Term life insurance offers guaranteed level death benefits and level premiums between 10, 15, 20, and 30 years.
For instance, a twenty-year term life insurance and a 30-year life insurance plan have level premiums for 20 or 30 years.
Many terms plan also provide policyholders with a conversion option!
A convertible term life insurance policy gives you the right to switch your term life insurance into a universal life policy without doing a new exam or answering any health questions.
That is a great way to buy permanent coverage because no additional underwriting is needed eventually!
The new policy will be issued at the same rate class as your original term life policy initially purchased.
More good news!
One of the disadvantages of universal life insurance is it costs more than term policies. But new versatile life insurance plans are now available at a similar price to term life.
When comparing universal life insurance vs. term, one of the most significant benefits is that you can continue your coverage at the exact cost for your entire lifetime.
So the essential difference between term life and universal life insurance is the duration of your coverage.
The premiums you pay for universal life vs. term insurance at younger ages will be more significant, but the pricing difference lessens as people get older.
Universal Life Insurance vs. Whole Life
A whole life insurance policy has lifetime guarantees on the cash value, premium, and death benefit.
The money placed in the guaranteed cash value portion of your whole life policy will earn tax-deferred interest, which will grow over time.
The best universal life insurance contracts guarantee the premium and death benefit for your lifetime.
The money placed in the cash value portion of your universal life policy will earn tax-deferred interest that will fluctuate over time.
One of the potential disadvantages of universal life is its fluctuating cash value.
What is the difference between whole life and universal life?
The best way to explain the difference between whole life insurance and universal life insurance is that whole life has a guaranteed cash value and pays an annual dividend on your policy.
An overfunded or limited pay whole life policy will accumulate cash values and dividends over time, whereas universal life does not pay dividends.
Guaranteed cash values and dividends are why agents often recommend whole life for popular savings strategies such as the Infinite Banking System and Life Insurance Retirement Plans.
Should I buy universal life insurance or whole life?
When comparing the cost of universal life vs. whole life, you must evaluate if you need excess cash values or dividends.
If cash value accumulation is not a concern, universal life is better for people looking for the cheapest lifetime coverage.
Why is universal life a better deal?
Because a universal life policy has a fluctuating cash value, while a whole life has a guaranteed cash value, whole life premiums are much higher to maintain lifetime coverage.
Since the premium and death benefit components of universal life are always guaranteed for your entire lifetime, cash value performance is not essential.
Plus, the insurance company keeps the cash value within your policy when you die!
Exchanging a poor-performing policy
Do you have an old whole-life policy that has accumulated a significant cash value?
You may be able to find a lower-cost universal life insurance plan or increase your death benefit by using a 1035 tax-free exchange.
A section 1035 exchange occurs when the cash in an existing life insurance policy is transferred to a new policy without tax.
Following the 1035 exchange rules, you can directly transfer the money from your old whole insurance policy into a new guaranteed universal life insurance contract.
As people age, their needs change, and many prudent seniors eventually consider long-term care insurance.
If you already have an insurance policy with cash values, you could transfer it into a hybrid long-term care policy using a 1035 exchange.
LTC policies offering nursing care benefits are permanent life insurance policies, not term life insurance.
Consequently, you can transfer money into a single premium policy which will eventually pay a death benefit when you pass, along with providing nursing care if required.
Depending on the policy, you can pay one lump-sum premium or make payments over numerous years.
These policies are contractually guaranteed, meaning your premiums and benefits will not adjust in the future.
The benefits can differ by the insurance company, but a traditional long-term care benefit will equal five times the premiums paid into the policy.
Types of Life Insurance Chart
| Term | UL | IUL | WL | |
| Cheap | x | |||
| Flex Payments | x | x | x | |
| Flex Benefits | x | x | x | |
| Duration | x | x | x | |
| Lifetime | x | x | x | |
| Cash Value | x | x | x |
Why Buy Universal Life Insurance?
Why Buy Universal Life Insurance? So, why should I buy universal life insurance?
One of the main benefits of universal life coverage is lifetime coverage!
When shopping for life insurance, the best strategy is to evaluate your current and future coverage needs.
If you need your policy always to be there when you die, universal life will last longer than term life at a much cheaper cost than whole life.
After all, why should your coverage die before you do?
Reasons to Buy Universal Life Insurance
Final Expenses and Burial Costs
If you have not put money away for final expenses, you may need to purchase a small final expense policy.
Most individual universal life insurance policies start at $25,000 of the death benefit and can be coordinated with your needs and budget.
However, you can also find small final expense life insurance policies to cover just burial expenses for as little as $5,000 with several simple issue policies.
Any policy that you buy to cover your final expenses should never end!
Mortgage Protection Life Insurance
With mortgage protection life insurance, the death benefit is directly connected to your mortgage balance.
Universal life insurance is an excellent option for mortgage protection.
If you have purchased overfunded universal life, you may use any excess cash values within your policy to pay off your mortgage early.
Life Insurance for Pension Maximization
Universal life insurance is often utilized for a concept called pension maximization.
Most pension plans offer the option of a single or a joint-life payout.
With a single-life payout, the retiree receives a monthly payment until they pass away. If the retiree dies before their spouse, the spouse will no longer get a monthly income from the pension plan.
With a joint-life payout, the retiree and their spouse receive a monthly payment until they pass away. A joint-life pension allows the retiree’s spouse to continue to receive an income even if they outlive their spouse.
The problem is that the monthly income from the joint-life option is significantly lower than the payout for a single-life option.
Another idea is to buy a life insurance policy for less than the monthly deduction they would face by selecting the joint-life pension payout option.
The best policy for pension maximization is either 30-year life insurance or guaranteed universal life.
Universal Life Insurance for Estate Planning
People must consider sound estate planning to protect their families if they suddenly die.
Life insurance with estate planning often goes hand in hand.
Many wealthy people use survivorship universal life (SUL) to protect their estate.
A survivorship universal life insurance policy insures married couples; this type of policy does not pay out until the surviving spouse dies.
These policies allow couples with significant assets to pass them down to kids and avoid selling off everything to pay federal estate taxes owed after both spouses die.
Universal Life Insurance to Create an Estate
Universal life insurance is also a great way to create an estate for your family.
Both UL and SUL policies can also be used as part of a wealth transfer strategy.
Survivorship life allows affluent couples to contribute manageable premiums to eventually pay out a much more significant death benefit to their children.
So, if your goal is to pass down the maximum amount to your kids, a second-to-die policy can be an excellent long-term investment.
In a recent article for Smart Asset, Rebecca Lake also summarizes the benefits of universal life in her article called ten reasons to buy universal life insurance.
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Best Universal Life Insurance Plans
Best Universal Life Insurance PlansWe continuously evaluate universal life insurance policies to find you the best product and company in America.
American General
- Policy Name: Ag Secure lifetime GUL
- Type of policy: Universal life insurance
- Maximum coverage length: To the age of 120
- Health classifications: preferred plus, preferred, standard plus, standard & tobacco
- Issue ages: (ages 18-80)
- Coverage amounts: $100,000 – $10,000,000+
- American General policy riders: accidental death rider, children’s insurance rider, spouse rider, terminal illness rider, waiver of premium rider
- A.m. Best’s rating: (A) excellent rating
Mutual of Omaha
- Policy name: GUL
- Type of policy: Universal life insurance
- Maximum coverage length: To the age of 120
- Health classifications: preferred plus, preferred, standard plus, standard & tobacco
- Coverage amount: $50,000 – $10,000,000+
- Issue ages: (ages 18-85)
- Application type: paper or electronic
- Mutual of Omaha policy riders: accelerated death benefit rider, waiver of surrender charges, guaranteed insurability rider, accidental death benefit rider, disability waiver rider, dependent children’s rider
- A.m. best’s rating: (A+) superior rating
Lincoln Financial
- Policy name: Life guarantee UL
- Type of policy: Universal life insurance
- Maximum coverage length: To the age of 120
- Health classifications: preferred plus, preferred, standard plus, standard & tobacco
- Coverage amounts: $50,000 – $10,000,000+
- Issue ages: (ages 20-85)
- Lincoln National policy riders: accelerated benefit rider with critical illness coverage, accidental death benefit rider, children’s term rider, disability waiver of month deduction benefit, disability waiver of specified premium, guaranteed insurability rider, lincoln life enhance rider, minimum death benefit endorsement, spouse term rider
- A.m. best’s rating: (A+) superior rating
Protective Life
- Policy name: Custom Choice UL
- Type of policy: Universal life insurance
- Maximum coverage length:: To the age of 120
- Health classifications: preferred plus, preferred, standard & tobacco
- Issue ages: (ages 18-85)
- Coverage amounts: $50,000 – $10,000,000+
- Protective Life policy riders: accidental death benefit rider, children’s term rider, disability benefit rider, extended care rider, income provider option, terminal illness rider
- A.m. best’s rating: (A+) superior rating
Remember that your premiums will depend on your overall health when shopping for insurance.
Universal life insurance quotes are based on personal factors like height, weight, and medical background.
We encourage folks to use our free universal life insurance calculator to determine the cost of a new policy.
Here is our complete list of the best universal life insurance companies which offer a great combination of financial ratings, underwriting fairness, and affordable premiums.
We also evaluate the financial strength and claims-paying ability of the best universal life insurance companies by using several rating agencies such as A.M Best.
| COMPANY | BBB | AM Best | JD Power |
| American General | A+ | A | 718 |
| Guardian Life | A+ | A++ | 760 |
| John Hancock | A+ | A+ | 739 |
| Lincoln Financial | A+ | A+ | 744 |
| Mass Mutual | A+ | A++ | 780 |
| Mutual of Omaha | A+ | A+ | 766 |
| Nationwide | A+ | A+ | 806 |
| Pacific Life | A+ | A+ | N/A |
| Principal Financial | A+ | A+ | 774 |
| Protective Life | A+ | A+ | 742 |
| Prudential | A | A+ | 770 |
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Affordable Life USA is dedicated to providing comprehensive life insurance solutions to families and business owners throughout the United States.
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Eric acquired his love for quantitative analysis while getting his business degree from Ferris State University, which provided a solid foundation for his analytical approach to financial planning.
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