What Is Universal Life (UL) Insurance?

Life insurance is a legally binding contract between the insurer, typically a financial company and the policyholder for providing financial support upon a death benefit. The most popular forms of insurance are term life insurance, which offer no cash value and are not permanent solutions. However, the more permanent type of insurance – Universal Life Insurance, offers the right flexibility to the policyholder to pay affordable premiums, save cash and maintain the right level of death benefits. Furthermore, it is also important to note that universal life insurance allows policyholders to borrow or encash their savings or a proportion of it. Plus, Universal Life Insurance policy death benefits and premiums paid have the same kind of tax benefits as all other life insurance.

How Universal Life (UL) Insurance Works

The process of how Universal Life Insurance works is similar to some life insurance products yet a little different too. So, let’s break down the process step by step. Once you get a Universal Life Insurance policy, you need to start paying the insurance premiums at a set frequency – monthly, quarterly or annually. A part of these premiums goes towards your insurance coverage, and the other half accumulates to build a cash value that grows every year at an interest rate. The life insurance coverage is payable to the policyholder’s family as a death benefit. On the other hand, the cash value acts as a savings account against which you can borrow a certain amount or do partial withdrawals as you need.

What are the Types of Universal Life Insurance?

There are several types of Universal Life Insurance. Here is a closer look at the different types.

Indexed Universal Life

This plan links growth in cash values to an index in the stock market, such as the S&P 500. Thus, there is enhanced potential to earn higher returns while remaining safe against market losses.

Guaranteed Universal Life Insurance

The primary feature of the Guaranteed Universal Life is to provide a guaranteed death benefit at stable premiums. However, this policy offers a lower cash value accumulation than other types.

Variable Universal Life

This insurance policy offers a high cash value because there are many market-linked investment options available. However, the risk is equally high because of market volatility.

What are the Benefits of a Universal Life Insurance Policy?

Before you buy a Universal Life Insurance Policy, it is important to understand its benefits and make a strategic investment choice. Here are the main benefits of a Universal Life Insurance Policy.

• Assured Death Benefits: Investing in life insurance policies has been identified as one of the most efficient, easiest and safest ways to provide for one's family, even after death. Upon the death of the insured person, the nominees or listed beneficiaries receive the guaranteed lump sum amount as a death benefit. This amount can be used towards repaying any outstanding loans that you leave unpaid, paying for major financial obligations like education, healthcare or day-to-day life expenses. Collateral for Loan: Since Universal Life Insurance Policy accumulates cash value, it can also act as collateral for loans. You can take out the loan amount based on the cash value accumulation. Tax Benefits: In India, Universal Life Insurance comes with certain tax benefits. The first benefit is the tax-deductible aspect of the premiums under Sections 80C and 80D of the Income Tax Act of 1961. The second benefit is the tax-free status of the death benefit as per the Section 10D of the same act.
• Wealth Building: Everyone dreams of growing their wealth. Universal Life Insurance comes with a market-linked or non-market-linked investment aspect. This aspect leads to the growth of your wealth over the years, fulfilling your wealth-building needs or goals.
• Flexibility: Universal Life Insurance policies offer flexible premium payment in terms of the amount. Each premium that you pay covers the life coverage and a cash value. So, when you want to contribute more towards the cash value, you can pay a higher premium amount within limits.

Final Words

Universal Life Insurance offers a flexible insurance solution for people with multiple goals beyond life coverage. The life insurance’s adaptability, benefits and availability of different types for specific needs make it an appealing, well-balanced financial product for anyone.