Universal Life Insurance - The Whole Life Insurance Alternative

Adrian decided to go for life insurance.
But he is undecided on which type would work best for him.
He wants to use his policy that includes a cash value component.
This means he has to choose between Whole Life or Universal Life Insurance.
We'll discuss both types of permanent life insurance and how they compare.
Universal and whole life insurance are both permanent life policies. A permanent policy provides a lifetime death benefit payout, unlike term insurance, which guarantees payouts during a specified period.
In either case, the policy is divided into two components: a savings or investment component and an insurance component. The savings component is otherwise known as the cash value. That’s why permanent life policies are also known as cash-value insurance. Check out our other video on how to best utilize the cash value as an investment tool. The premiums required are much higher for permanent insurances in comparison with term policies.
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Nonetheless, the two life insurance policies differ in some crucial ways. In addition to the guarantee of cash value accumulation, whole life insurance offers consistency through fixed premiums. Consumers will find universal life insurance flexible in terms of premium payments, death benefits, and saving provisions.
How do these different types compare?
Let's find out.
Regardless of how long you live, whole life insurance covers you. If you pay your premiums, the policy beneficiaries will receive the death benefit. This is the perfect policy for long-term commitments, such as caring for a dependent adult child or paying estate taxes.
Life insurance of this type offers coverage along with savings. A portion of your insurance premiums is put into a high-interest savings account. Your cash value increases with every premium payment. Cash value is accrued on a tax-deferred basis. Whole life insurance is meant to provide for the long-term goals of the policyholder.
Guaranteed cash value is an attractive feature of whole life policies. If you need cash in an emergency, you can borrow against the cash value or surrender your policy.
You have some flexibility with your company's dividends. You can use them to reduce your premiums or buy additional coverage, or you can receive them as cash annually.
On the other hand, whole life insurance is quite expensive, especially when compared to term insurance. The reason is that it offers a level premium, a fixed death benefit, and attractive living benefits. You can afford it better in the long run when you buy whole life insurance when you are young.
Now let’s look at universal life insurance.
The flexible nature of universal life insurance makes it known as adjustable life insurance. When there is money in the account, you are permitted to reduce or increase your death benefit at any time, or to pay your premiums in any amount. Nonetheless, certain restrictions do exist.
A portion of the payments you make to your universal life insurance policy is invested, and any interest earned is credited to your policy. Your cash value increases as interest is tax-deferred.
In addition to adjusting the death benefit when necessary, you can lower the death benefit to reduce your premium. If you have enough cash in that account, you can use that money to pay the premium.
One of the appealing features of universal life coverage is the ability to adjust the face value without surrendering it. Paying a premium can be increased or decreased as you change your financial situation.
Cash value can also be partially withdrawn or lent. Repetitive withdrawals, however, could reduce the cash value and leave you unprepared when you need it.
Market conditions are a major factor affecting the interest rate on universal life insurance. You have a chance of seeing your savings fund grow if the policy performs well. In contrast, a poor performance will not earn the expected returns. The fees are another downside. If you terminate your policy or withdraw money from the account, you may be charged a surrender fee.
Your family structure and financial situation will dictate the right type of life insurance for you as well as your appetite for risk and your desire for flexibility. We also recommend exploring other types of life insurance such as term, group, and more.
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----- VIDEO CONTENT -----
00:00 - INTRODUCTION
00:25 - INSURANCE COMPONENTS
00:55 - INVESTMENT TOOL
01:35 - WHOLE LIFE INSURANCE
02:45 - UNIVERSAL LIFE INSURANCE

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