What is Universal Life Insurance and How Does it Offer Life-Long Security?

A universal life insurance plan is like whole life policy that remains in effect for as long as your live. There is no term limit for such plans, and you can enjoy the benefits of your policy provided you continue to regularly pay premiums. Universal plans differ from whole life insurance plans, as a universal plan will even let you modify your premium amount and death benefit cover. There is more flexibility available with a Universal Life Insurance Plan. 

Differences Between Universal Life Insurance and Whole Life Insurance 

Here’s a short list of differences between universal life insurance and whole life insurance policies: 

Flexible Premiums and Death Benefit  

The most important and defining feature of a universal life insurance plan is its flexibility. You can choose to increase your death benefit to match your family’s increasing financial needs. Or alternatively, you may decrease your life cover amount if you no longer need a high sum assured to secure your family’s financial future. The premiums you pay will also be adjusted proportionally to your current death benefit amount.  

To modify your death benefit, all you need to do is contact your insurance provider and request a new sum assured amount. However, you might have to undergo another medical evaluation if you wish to increase your life cover.   

No Term Limit 

Usually, a term plan naturally lapses once it reaches the end of its policy term. But a universal life insurance plan has no term limit whatsoever. This means that a plan you buy in your 20s will be just as valid when you retire. Moreover, the fact that you can increase your life cover ensures that your family remains secure even with the rising cost of living due to inflation.  

Cash Value Accumulation 

Another defining feature of universal life insurance plans is that they always come with a cash value element. Cash value is a savings feature that grows over time based on the premiums you have paid. A plan with cash value not only offers life cover but also provides returns that can help you fulfil your future life goals! Some plans allow you to directly withdraw your accrued cash value, while other plans pay out the cash value in the form of regular income payouts/survival benefits. 

Cash value can also be used to passively pay your policy’s premiums. Meaning that once your plan has a substantial cash value, your policy will pay for itself, and you won’t have to spend another dime to keep your policy active! 

Policy Loans 

Alongside having a cash value element, universal life insurance plans generally also provide the option to take a loan on your policy. The loan amount you get will be dependent on the total cash value your policy has accumulated. A policy loan is a quick and safe way to get liquid funds in case of financial emergencies. Interest rates for policy loans also tend to be lower than that of personal loans. The greatest benefit of a policy loan is that it does not affect your credit score in any way! 

Your policy will be the collateral. If you fail to pay off your loan on time, then the pending amount (including interest) will be deducted from your policy’s death benefit amount. When your policy’s death benefit amount reaches zero, your policy will lapse, and you will no longer be protected by any off its benefits.  

Tax Benefits 

Just like most insurance plans, universal life insurance polices are also subject to various tax benefits. In India, life insurance plans enjoy tax benefits under Section 80C and Section 10(10D) of the Income Tax Act of 1961. Under Section 80C, all premiums paid towards life insurance can be deducted from your total tax liability up to a limit of ₹1.5 lakhs per year. On the other hand, Section 10(10D) offers tax exemptions to your insurance returns (provided your policy meets the section’s terms and conditions) and your death benefit amount.  

Conclusion 

Universal life insurance plans are the ideal option for those who want a lifelong policy that is highly flexible. Need more life cover to secure your growing family? Then you can increase your death benefit without having to buy a new plan! Similarly, if your family is no longer dependent on you, you can simply choose to reduce your life cover amount, which in turn will reduce your premium charges. Additionally, the cash value element in universal life insurance plans can financially assist you with all your future life goals.