Pros and Cons of Universal Life Insurance

Every individual with dependents should have a Columbus life insurance policy to protect their family. Most consumers choose a term life insurance policy, which offers low premiums in exchange for coverage for a predetermined length of time. However, individuals who would like to invest, as well as provide insurance for their loved ones, may wish to consider universal life insurance. Universal life insurance is more costly than term life insurance, but it also retains cash value and can act as an investment. Below are some pros and cons to consider before purchasing a universal life policy.

Pro: Universal Life Insurance Can Be Used as an Investment 

Universal life insurance invests a portion of each premium paid, which then accrues interest quarterly. These interest rates are often tied to the value of an investment fund, so the amount earned each quarter will vary. Most universal life insurance policies do promise that the cash value of the policy will not decrease, even if the fund does not do well.

Con: Premiums Cost More Than Other Types of Insurance 

The largest disadvantage of universal life insurance is the high cost of the premiums. Individuals who purchase universal life insurance should carefully consider if they'll be able to afford a high premium during retirement.

Pro: Flexible Premiums Are Available 

Unlike other insurance policies, universal life insurance offers flexible premium policies in addition to single premium or fixed premium policies. Consumers can tailor the premium payments to their specific circumstances. Taking advantage of flexible premium payments can also offer a tax advantage to consumers who are earning money now but intend to retire soon.

Con: Interest Rates Are Not Guaranteed 

Universal life insurance interest rates are reset every quarter in accordance with the performance of the investment fund tied to the policy. Therefore, consumers who purchase a policy as an investment may be disappointed if their interest rate plummets.

Pro: The Death Benefit Is Adjustable 

If consumers' circumstances change, the death benefit can be increased or decreased to meet their new needs without issuing new policies. Of course, the premium will also change in accordance with the death benefit.

Con: Commissions on Policies Sold Are Front-Loaded 

Insurance agents charge a commission on the sale of each universal life policy. This fee is front-loaded, so it may take several years for the insurance policy to gain cash value.

Pro: The Cash Value of the Policy Can Be Withdrawn at Any Time

Consumers who need cash for an unexpected emergency can withdraw all or part of the cash value of their policy at any time. If the cash is withdrawn as a loan against the policy, consumers can also avoid taxes on the amount they receive. 

Con: Canceling a Policy Can Cost Hefty Fees

Consumers who decide they no longer want or can afford their universal life policy can cancel it and withdraw the cash value of the policy. However, the insurance company can charge surrender fees to cash in the policy. Most surrender fees are limited to a certain number of years, but the time range varies between insurance polices. 

Purchasing a Life Insurance Policy

Universal life insurance can be an excellent investment for some individuals, but can represent an unnecessary expense for others. Consumers who want to invest for their retirement and have already maximized their IRA contributions may find that universal life insurance can offer them tax-free income.
Individuals interested in purchasing any type of life insurance policy should call Gardiner Allen DeRoberts at 614-221-1580 for a free quote.