March 19, 2018

Understanding Universal Life Insurance

You have probably heard about universal life insurance, but do you know what makes it different from other types of insurance? Would it be better for your personal situation than term or whole life insurance?

Universal life insurance and whole life insurance are both considered permanent insurance. This means that, unlike term insurance, they are designed to last for your entire life. They will not expire as long as certain premiums are paid and the policy remains fully funded. What makes universal life insurance different from whole life insurance is that it offers more flexibility for life’s changing needs.

With flexible premiums and flexible face amounts, universal life insurance can be a great choice for some people, since we never truly know what life will bring. If your policy has cash value, you may be able to skip a payment from time to time without negative consequences. Alternatively, you can make extra payments during times when your cash flow is greater.

These policies also offer flexible face amounts. What this means is if you decide later in life that you don’t need as much coverage as you once had, you can reduce your policy’s death benefit, thereby likely lowering the premiums you need to pay to keep your policy in good standing. Alternatively, you may be able to increase your policy’s face value; but keep in mind that increases may require proof of insurability.

While universal life insurance policies can be a great tool for achieving a wide variety of financial goals, because of their flexibility, these policies need to be monitored more closely than other types of life insurance policies. You need to pay close attention to your annual statements to make sure that your policy is performing as you intended.

Apart from flexible payments, there are a few other factors that can affect the status of a universal life insurance policy. The cash value of this type of policy earns an interest rate. While there is a guaranteed minimum rate—and our universal life insurance policies will never earn less than that rate—they also earn a current rate, which can vary. The fluctuation of the current interest rate will impact the amount of cash value your policy has, and therefore the amount of premium necessary to keep your policy in good standing. Additionally, if you have taken a loan from your policy’s cash value, the loan and the interest can impact your policy negatively if not repaid.

While it is important to review the annual statement for any type of life insurance you carry to make sure that it is continuing to meet your needs, this is especially important with a universal life insurance policy. We also recommend that you meet with your district representative or contact our home office on an annual basis to discuss your policy’s status and get answers to your questions.

National Mutual Benefit offers both Benefit Universal Life, for an individual, and Dual Benefit Universal Life, which covers the lives of two individuals under a single policy. One unique aspect of NMB’s Dual Benefit Universal Life insurance is that coverage is provided on a first-to-die basis. What this means is that the death benefit is paid upon the death of the first insured, when it is needed most. Many universal life insurance policies that cover the lives of two individuals do not pay death benefits to beneficiaries until both insureds have passed away. NMB’s Dual Benefit Universal Life policy can be particularly useful in situations where two individuals— such as spouses or business owners—share joint financial responsibilities. This option is typically more convenient and cost effective than purchasing two separate policies.

Both types of NMB’s universal life insurance policies can be further customized to suit your particular needs through the use of policy riders. Policy riders can include everything from a children’s term rider, which offers protection on the lives of your children, to an accidental death benefit rider, which offers an additional death benefit if the insured dies by accident.

A universal life insurance policy may not be the best solution for everyone, but understanding the features of such policies can help you consider what might be a good choice for your personal financial situation. Please reach out to your local agency office or the home office at (800) 779-1936 or info@nmblife.org for more information.