What is Universal Life Insurance

Universal life insurance is a permanent life insurance policy that offers premium and death benefit flexibility.  As with all permanent life insurance policy (e.g. whole life, variable life, etc.), universal life has 3 components (1) premium, (2) cash value, and (3) death benefit. The cash value of a universal life policy is determined by the crediting rate of the policy which is supported by the general account of the life insurance carrier. All universal life policies have a guaranteed crediting rate, or floor, a carrier must adhere to based on the policy contract. There are two primary types of universal life insurance policies.

Fixed Premium or No Lapse Guaranteed Life Insurance

No lapse guaranteed life insurance is a universal life insurance policy that guarantees the premium payments and death benefit. The premium remains the same over the lifetime of the insured provided the policyholder makes timely premium payments to the policy. In most cases, no lapse guarantee universal life insurance policies have little, if any, cash value.

Flexible Premium Universal Life

Flexible premium universal life allows the policyholder to vary their premium payments within certain limits. Provided the policy has sufficient cash value the policy can maintain itself for a period of time without additional premium payments. However, by delaying premium payments you will be required to make a much larger payment in the future to keep the coverage in force.

The two primary components of a flexible premium universal life insurance policy are crediting rate and mortality cost.

A flexible premium universal life policy cash value earns a credit based on the policies crediting rate. If the crediting rate of a flexible premium policy increases over time the policy will require less premium in the future. Inversely, if you purchase a flexible premium policy in a high interest rate environment it is likely the policyholder will have to pay more premiums in the future for the coverage to stay in force. All flexible premium universal life policies have a guaranteed crediting rate (typically 2 to 4 percent) the carrier is obligated to pay despite what the market does. This information will be included in your policy contract.

Mortality cost is the charge taken from the policy to pay for the cost of insurance. A flexible premium universal life has a guaranteed mortality cost and current mortality cost. Guaranteed mortality cost is the maximum a carrier can charge for cost of insurance under the policy contract. Current mortality cost is what the carrier is actually charging for cost of insurance based on their mortality experience.

For additional information on how this works view our featured video, Flexible Premium Universal Life Insurance Crediting Rates and Mortality Costs.

Buying life insurance is important for those individuals who financially support dependents or other family members. It is also a critical asset to provide necessary liquidity for estate planning purposes. It is important to determine what your life insurance needs are, choose what type of policy will fulfill that need, and determine which life insurance carrier suits your unique situation. Click here to see how HNWLifeInsurance.com can assist you in this process.

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