Universal Life Insurance Pros and Cons

Being able to give a family the financial peace of mind they need if the unforeseen hits is the goal of everyone at some level. If the financial provider for a family is no longer around to provide because of a tragedy, how can that family survive? Life insurance is often one of the easiest options to solve this problems and universal life insurance is one of the most popular options from which the average person can choose. There are some definite pros and cons to consider with this type of life insurance, so let’s take a look at them in more detail.

What Are the Pros of Universal Life Insurance?

1. It provides comprehensive death benefits.
People who choose a universal life insurance policy can choose to have it pay out a flat benefit, no matter how much money has accumulated within the context of the plan over time. There’s also a second option to pay this flat benefit plus whatever cash value has accumulated if so desired.

2. It allows for stock index participation.
Imagine being able to take advantage of stock index gains without risking the principal being contributed to the life insurance policy and you’ve got the idea behind universal life insurance. This indexing strategy can build some enormous wealth within a plan very quickly.

3. It is often a very flexible plan.
As income levels change, so can the monthly amount due on the premiums. This allows the life insurance to stay in place, even during difficult times. The coverage is also permanent, so as long as the premiums are paid on time, there will never be a lapse in life insurance coverage.

What Are the Cons of Universal Life Insurance?

1. It can be incredible expensive.
Not only are there are administrative costs and more fees associated with universal life insurance, but the premiums are one of the highest in the industry today. When compared with another popular product, term life insurance, the universal version can be as much as 4x more costly.

2. It requires any borrowing to be paid back.
Policy holders can take out loans on the equity of their universal life insurance, but those are funds that must be paid back over time. Insurance companies are also going to charge interest on the monthly repayments. Outstanding loans at the time of a tragedy may even reduce the overall death benefits that are paid out.

3. It has very conservative interest rates.
Universal life insurance isn’t the type of plan that will allow someone to pay premiums and see investment guarantees. The insurance estimates are very conservative, so many financial gains are small at best.

Universal life insurance does offer some tremendous advantages, but it comes at a cost. Is it the best policy to meet your needs? By weighing the pros and cons of this type of insurance plan, everyone can decide for themselves if this is an investment worth making.

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