Universal Life Insurance: Everything You Need to Know

Universal life insurance (UL) is either the greatest solution to your life insurance needs, or it’s not.

In this guide, we tell you everything you need to know about this type of life insurance and the insurance carriers that offer UL. We also share information about the special underwriting programs available with this type of permanent coverage.

The reality with universal life is that it does have tremendous potential, BUT there are many pitfalls to look out for.

Universal life insurance (UL) is a type of life insurance that, when properly designed, has the potential to, provide lifetime guarantees or cash value accumulation to meet future needs. With UL policies, you typically have a choice of a cash value accumulation or a guaranteed universal life (GUL) policy.

If you want a policy that is guaranteed for as long as you live, a guaranteed universal life insurance (GUL) policy is a great choice. While we’re big believers in term life insurance, there are times when a GUL may be a better option for you.

With GUL, the premium you pay and the death benefit you receive is guaranteed to age 120 with most companies. You won’t outlive this policy if you pay your premiums on time.

This is also an excellent option for second-to-die life insurance policies.

Why GUL?

The appeal of a GUL policy is that it is simple to understand, and you know what you are getting from day 1. Guaranteed universal life insurance policies are comparable to a term life insurance policy. Many GUL policies offer life insurance riders for chronic and terminal illnesses that may interest you.

Hybrid life insurance policies are also an option where a guaranteed universal life policy is combined with long-term care insurance riders. An example would be Lincoln National’s MoneyGuard Fixed Advantage policy or Nationwide’s CareMatters II policy.

The disadvantage of a GUL happens if you decide you no longer want life insurance in the future. Unlike a cash value whole life policy where you may get money back when you cancel, A GUL policy typically has little to no cash value.

When is GUL a better option than term life insurance?

The cost of term life insurance for seniors becomes expensive to buy. In some cases, you may be able to buy a GUL for a comparable price. The same holds if you have an existing term policy that is convertible. Converting your existing term policy may be a better option than buying a new term if you’ve developed health problems that would make new insurance costly.

Are you a tobacco user? If you smoke cigars, cigarettes, pipe tobacco, or marijuana, we have a company that will incentivize you to quit using.

With this program, you can get the first three years at a non-smoker rate. If you quit smoking by the end of the third year, you can request that all future years be charged at the lower non-smoker rates.

Another appealing factor with UL policies is underwriting. Life insurers continuously look for ways to do away with the paramed exam, offering greater coverage through no-exam platforms.

The statistics show that the easier it is for consumers to get coverage, the more consumers will buy.

Underwriters check the Medical Information Bureau and prescription databases. They will use height-weight measurements from your medical records and ask you about your family history of heart disease and cancer rather than have you complete the paramed.

With a cash value (CV) universal life policy, the goal is to provide you with a cash value equal to or more than your death benefit (endowment) when you reach age 100.

The concept with cash value accumulation policies is to build up enough cash value, and then access that cash value to supplement retirement in later years.

More recently, hybrid universal life policies have been introduced. These policies provide death benefits, long-term care coverage, and Return of Premium options.

You may even use the appeal of a cash value policy to reward key people in your business. The appeal is that you may access your cash value on a tax-deferred basis using policy loans. As long as the policy remains active, you may avoid paying taxes on any gains in the policy.

The problem with cash-value life insurance policies is that they rarely perform as illustrated when you bought them. This is mainly due to the assumptions built into your insurance company’s and agent’s illustrations.

Index universal life insurance (IUL) is another cash value accumulation policy type. Traditional cash value policies have lost some appeal with their 2-4% non-guaranteed interest rates.

Index UL policies, on the other hand, are illustrated using non-guaranteed interest rates in the 5-6% range tied to an index such as the S&P 500.

If life insurance has a double-edged sword, index universal life insurance is it. While the potential cash value accumulation is appealing, index policies are complicated to understand.

The Bottom Line with Cash Value Life Insurance

Whether you buy a traditional or index policy, you must commit to paying for this policy for many years (think at least 20) before the cash value benefits become available.

You must request “in-force illustrations” each year. This is different than the annual statement the company will send you. The importance of the in-force illustration is to show you how the policy is performing vs. how it was originally illustrated. If underperforming, you may need to pay additional premiums now to avoid big problems in the future.

Some life insurance companies have published consumer guides for your review.

• Corebridge Financial
  • Value Protector III Consumer Guide
  • Max Accumulator III Consumer Guide
  • GUL3 Consumer Guide
• Pacific Life
  • PL Promise GUL Consumer Guide
  • PL Promise GUL Consumer Guide California
• Protective Life
  • Advantage Choice Consumer Guide
  • ProClassic II Consumer Guide
  • Lifetime Assurance Consumer Guide
  • Survivor UL Consumer Guide
  • Indexed Choice Consumer Guide
• Prudential
  • PruLife Essential Consumer Guide
  • Founders Plus Consumer Guide
  • Index Advantage Consumer Guide
  • Momentum Consumer Guide

You have questions about universal life insurance, and we have the answers!

The illustration is the most important document to review before purchasing universal life insurance.

Here’s a list of things to consider:

• Did you receive the full illustration with all the numbered pages?
• Is your age listed correctly on the illustration?
• What medical underwriting rate class is being used?
• Does the illustration require that you pay premiums every year?
• What is the non-guaranteed interest rate?
• What is the guaranteed interest rate?
• How long does the guaranteed death benefit last?
• How long does the non-guaranteed death benefit last?
• What is the cash value in years 10, 20, 30, age 67, and 100?
• Are there surrender charges? How much and how long do they last?
• Are you planning to access the cash value in the future through policy loans?
• Does the policy have an over-loan protection feature?
• Did you receive an illustration showing these future withdrawals?
• Are you considering any of the available riders?

A standard illustration is typically 9-15 pages long, while index universal life insurance illustrations are 30-40 pages long.

You should receive the full illustration at the beginning of the application process. For more on how the entire process works, check out our Life Insurance 101 guide.

Something to remember is that if your approval comes back more or less favorable than initially illustrated, you need to be provided with new illustrations as the policy will perform differently than initially illustrated.

Universal life insurance may be a great option to meet your insurance needs but do not buy any policy unless you fully understand how it works. Our life insurance service researches the best life insurance companies for your universal life insurance needs.

We’ll provide comparisons and show you the options that meet your needs. We also have policies that allow you to obtain up to $500k of life insurance without an exam, and in some instances, you may obtain up to $3 million in coverage.

Please take a few minutes to submit your request. There is never any pressure or obligation with our insurance service. Thank you.