Universal Life Insurance Explained

Universal life insurance is a “flexible premium” “current assumption” “adjustible death benefit” type of cash value life insurance. Confusing, I know. The term flexible premium means the policyowner is permitted to select whatever premium he or she wishes to pay, within limits, and later to adjust or change the premium. Policyowners may even skip premium payments as long as the cash value is sufficient to cover policy charges.

The term, current assumption, means that current interest rates, as well as current mortality and expense charges, are used to determine additions to cash values. The term adjustible death benefit means that policyowners are permitted to raise or lower policy death benefits. However, increases may require evidence of insurability.

As a result of this tremendous flexibility, universal life insurance has become a very popular option for those looking for permanent life insurance coverage.

What are the advantages of universal life insurance? 

1. The policyowner has wide discretion or flexibility in selecting the premiums that are paid. Provided that there is enough cash value to cover mortality charges, the policyowner may even skip payments. In contrast with other types of policies, skipping payments does not result in the creation of policy loans. 
2. The policyowner may change the level of death benefits. Decreases in the death benefit are permitted at virtually any time. 
3. The policy is “transparent”. That is, policy illustrations and annual reports break out and report each of the policy lements seperately. 
4. Most universal life insurance policies offer two death benefit patterns, called option A and option B. 

• Option A: This option, which is similar to a traditional whole life policy, offers a fixed (level) death benefit. As cash value grows larger, the net amount at risk (or pure insurance) is reduced to keep the total death benefit constant. 
• Option B: This option operates in a manner similar to the death benefit one would receive from a traditional whole life policy with a term insurance rider that is equal to the current cash value. Under option B, the death benefit is equal to a specified level of pure insurance plus the policy’s cash value at the time of death.