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What Are The Disadvantages Of Universal Life Insurance?

Universal life insurance has a cash value component that can be withdrawn; however, this amount is deducted from the death benefit amount. Furthermore, the death benefit amount is the only payment your family will get when you die. There are also other disadvantages of universal life insurance:

Higher PremiumsUniversal life insurance usually has higher premiums compared to other types of life insurance.
Surrender FeesCanceling the policy or withdrawing more than a certain percentage of the cash value within an established period incurs a penalty.
Lapse PotentialLow cash value or failure to pay sufficient premiums can cause the policy to lapse.
Uncertain ReturnsUnlike other investment options, there are no guarantees on the returns of a universal life insurance policy.

Does Universal Life Insurance Expire?

A guaranteed universal life (GUL) insurance policy offers a death benefit and payments that will not increase with time. You select an age at which the policy terminates (such as age 90, 95, 100, 105, 110, or 121). Choosing a higher period will increase the premium.

What Happens When A Universal Life Insurance Policy Matures?

Universal life policies provide coverage for the entirety of your life, typically around your 100 – 125th birthday. Maturity can happen in two ways:

  • When you die, the policy will mature and expire. It will pay any benefits to your beneficiaries. Cash value in the policy may or may not be paid to the beneficiary, depending on the option selected at the time of the application.
  • If you become terminally or chronically ill, you may have the option to “cash in” your insurance policy for a portion of the death benefit, minus administrative fees.

What Is Universal Life Insurance And How Does It Work?

Universal life insurance is a form of “permanent” life insurance, designed to protect for long periods. It has a cash value or savings component, which the policy owner can access. The policy owner and the insured may not be the same person. Universal life insurance is different from other types of permanent life insurance because it doesn’t have a set premium. The policy owner can pay any amount within the minimum and maximum premium stated in the policy.

How Does Universal Life Insurance Work?

Universal life policies have a death benefit, cash value, and two different schedules that determine the cost of insurance. The “current schedule” is based on the insurance company’s claims, investment results, and cost. The “guaranteed schedule” shows the maximum amounts you can be charged. The policy owner can adjust premium payments up or down, with a higher premium payment increasing the cash value. Universal life policies also have a surrender period and charges, which are disclosed in the policy.

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