Universal Whole Life Insurance; a safety net for your beneficiaries in your absence

Universal whole life insurance is a type of permanent life insurance policy that offers lifelong coverage to policyholders. This type of insurance offers a combination of insurance coverage and an investment component.  Universal whole life insurance policies are typically more expensive than term life insurance policies, but they offer benefits that term policies do not, such as the ability to borrow against the policy’s cash value or to make withdrawals or loans from the policy.

Universal whole life insurance provides coverage for the entire life of the policyholder, as long as premiums are paid on time. It provides both a death benefit for the policyholder’s beneficiaries and a savings component that builds cash value over time.

The policyholder has the option to withdraw some of the cash value or borrow against it. However, any amount withdrawn or borrowed from the policy reduces the death benefit payable to the beneficiaries. If the policyholder dies before the loan or withdrawal is paid back, the outstanding balance will be deducted from the death benefit.

The key features of universal whole life insurance

1. Lifelong Protection: Universal whole life insurance offers coverage for the entire life of the policyholder, as long as premiums are paid on time. This means that the policyholder’s beneficiaries will receive a death benefit when the policyholder passes away, regardless of when that occurs.
2. Cash Value Accumulation: Universal whole life insurance includes an investment/savings component. The savings component is the cash value of the policy, which builds up over time as premiums are paid. Part of the premium paid goes into an investment account that earns interest over time. This cash value can be used for a variety of purposes, such as taking out a loan, paying premiums, or even surrendering the policy.
3. Premium Flexibility: Universal whole life insurance offers flexibility in terms of premium payments. The policyholder may also choose to pay additional premiums into the policy to increase the cash value and death benefit. The policyholder may also be able to adjust the death benefit or the premium payment schedule; he can choose to pay the premiums annually, semi-annually, quarterly, or even monthly.
4. Death Benefit Options: The death benefit is the amount of money that will be paid to the policyholder’s beneficiaries upon their death. The policyholder can choose from different death benefit options when purchasing universal whole life insurance. These options include level death benefit, increasing death benefit, and decreasing death benefit.

Benefits of universal whole life insurance

• Lifelong coverage: Universal whole life insurance policies offer coverage for the policyholder’s entire lifetime as long as the premiums are paid. This provides peace of mind to policyholders who want to ensure their beneficiaries are provided for after they die.
• Cash value: The savings component of a universal whole life insurance policy can be used to borrow against or withdraw from as needed. This can be a helpful source of funds for emergencies or other expenses.
• Tax benefits: The cash value of a universal whole life insurance policy grows tax-deferred. This means that policyholders do not have to pay taxes on the growth until they withdraw the money or borrow against it. Additionally, the death benefit is usually paid out tax-free to the beneficiaries.
• Estate planning: Universal whole life insurance policies can be used as a part of an estate plan to provide liquidity to pay estate taxes or to pass on wealth to heirs. The death benefit can be used to pay estate taxes, ensuring that the policyholder’s assets are not depleted by taxes.
• Flexible premiums: Universal whole life insurance policies usually offer the option to adjust the premium payment schedule or to pay additional premiums to increase the cash value and death benefit.

Drawbacks of universal whole life insurance

• Cost: Universal whole life insurance policies are typically more expensive than term life insurance policies, as they offer both a death benefit and a savings component. It tends to have higher premiums than term life insurance and this can be challenging to maintain, particularly if the policyholder experiences financial difficulties.
• Complexity: Universal whole life insurance policies can be complex, with various fees and charges that can affect the policy’s cash value and death benefit. Policyholders need to carefully review the policy’s terms and conditions to understand how it works and what they are paying for. Policyholders may need to work with a financial advisor to ensure that they are making informed decisions.
• Investment risk: The cash value component of a universal whole life insurance policy is invested in the insurer’s portfolio. The policyholder is not directly responsible for the investments made, which means that they are subject to investment risk. If the investments do not perform well, the policy’s cash value may not grow as expected.
• Limited Investment Options: The investment component of universal whole life insurance is typically limited to a few investment options chosen by the insurance company. This can limit the policyholder’s ability to diversify their investments.
• Reduced death benefit: Any withdrawals or loans from the policy’s cash value reduce the death benefit payable to beneficiaries. If the policyholder dies before the loan or withdrawal is paid back, the outstanding balance will be