What is Universal Life?

Universal Life Insurance , The English name is Universal Life, Also known as comprehensive life insurance, was the mainstream product from the 80s to the 90s. It is also the benchmark and core of mainstream universal insurance products on the market. This is a product that combines savings and financial management and protection. Its functions And flexibility is more comprehensive than participating whole life insurance (Whole Life).

What is universal life insurance?

Universal life insurance is similar to participating whole life insurance in that both are guaranteed for life.This type of product also provides a savings function, just like you set up a savings account in a bank, except that the savings function in the policy has a special name, called "Cash value"Part. After you pay the insurance cost, the remaining part is automatically converted into cash value, and the insurance company manages to enter the market for investment. The income of universal insurance is generally linked to market interest rates, specific dividend terms and investment returns The terms are determined by the policies of different insurance companies.

A simple comparison is that universal life insurance is equivalent to a lifetime with cash value functionTerm life insurance, The premium is often between term life insurance andParticipating Whole Life InsuranceBetween, and the premium payment is more flexible than the dividend-type whole life insurance.

How universal insurance works

The premium paid is divided into two, one part is used to pay the cost of insurance to provide protection for death compensation, and the other part will be invested in a cash value account.The operating logic of universal insurance is that as time goes by, the return on investment continues to grow. Due to compound interest, the income generated will likely be enough to cover the cost of insurance for the rest of your life.In this case, customers can choose how many years to pay for the policy, that is, after putting in the amount of money, they will get life-long protection without paying premiums.

Another difference from participating whole life insurance is that the universal insurance policy is more flexible. The policy holder can pay at any time, the cost can be more or less, but the minimum payment level must be reached to ensure that the universal insurance policy will not It cannot be maintained due to cost reasons.

The history of universal life insurance

In 1971, GR Dinney put forward the concept of "universal insurance plan" in his presidential campaign speech.Subsequently, under the influence of the market, insurance companies launched early universal insurance products, which are a combination of term life insurance and deferred annuity products.However, when death compensation involves an annuity contract, it will cause federal tax problems for the beneficiaries.In 1979, California Life Insurance launched a product called Total Life©️, which solved these problems with an insurance policy contract and formed today's universal insurance.By 1983, big companies followed suit one after another, entered the universal insurance market, and developed a variety of universal insurance products. In 1984, the government passed a series of bills, clearing out some doubts in the future market development of universal insurance, and universal insurance has become a mature market ever since.

Advantages and disadvantages of universal insurance

The advantages of universal insurance are flexible premiums, lifetime protection, and part of the cash value can be used to pay premiums and borrow.The death benefit is not static and can be adjusted by the policyholder.In general, universal insurance gives policyholders more flexibility on the basis of term life insurance and participating whole life insurance.

The cash value investment part of universal insurance has a management fee cost, which is similar to the cost when you buy a mutual fund or ETF.Some universal insurance derivative products (such as investment universal insurance VUL) generally have higher management fees than other universal life insurance policies.

In terms of premiums, for the same amount of insurance, although the premiums of universal insurance may be cheaper than participating life insurance products, it may still be about three times the premium of term life insurance.

Universal insurance derivatives

As a whole life insurance product after participating whole life insurance, universal insurance has gradually evolved the following three categories of products with the progress of the market and the revision of taxation systems and laws and regulations. We will explain them in detail later. :

• Guaranteed Universal Life Insurance: Guaranteed Universal Life/GUL: a pure claims insurance type, Referred to asGUL Insurance.According to the agreed premium, after a certain year, even if the market encounters the worst situation, the compensation will be guaranteed for life.This is currently the cheapest whole life insurance.The disadvantage is that there is almost no cash value, which can be understood asTerm life insurance(Term) For the lifetime version.If we only use it for wealth inheritance, leave a legacy to children or beneficiaries, and don’t care about the cash value function of the policy, and are unwilling to take market risks,GUL InsuranceIt can be said to be a suitable choice. (Click to learn more about GUL）

• Investment universal insurance: Variable Universal Life/VUL
• Indexed Universal Life: Indexed Universal Life/IUL (Click to learn more about IUL)

Applicable groups

Universal life insurance (this article specifically refers to traditional universal life insurance), as a relatively basic product with both investment and financial management and protection functions, is more suitable forNeed to be guaranteed for life和Hope for flexibilitycustomer of.

*Disclaimer: *The specific circumstances of Universal Life are specified by the policies and additional terms of different life insurance brands. This article does not constitute insurance or investment advice

American Life Insurance Guide > Life Insurance Academy > What is universal life insurance?