Flexibility in universal life insurance
You effect decisions regarding your universal life insurance policy’s structure, not just before the life insurance contract is issued but for its entire lifetime. A dutiful agent will continually review your policy’s progress, but it is, notwithstanding, only you who can ensure that your policy is evolving according to your wishes.
Premiums
You and your insurance agent will work out a “premium payment strategy,” which is a plan to help you accomplish your insurance goals, but you are not constrained to adhere to this plan. You are free to pay however much you please, whenever you please.
The insurance company may provide you with guidelines to aid you. They may specify a minium, target, or maximum premium, but you are not required to abide by these, either.
However, federal laws limit the amount that may be paid into a universal life insurance policy. (see also: Federal regulations)
Cash value
With universal life insurance, your entire premium goes into your policy’s “cash value” (less front-end loading, if any). Cash value is an interest-bearing financial asset which you own and to which you have access. (For greater detail on accessing cash value, see “Cash value.”)
Instead of taking its fee directly from each premium, the insurance company withdraws a payment monthly from your cash value. You must ensure that your policy contains enough cash value to cover the charges. Otherwise, your policy will lapse.
Your cost of insurance (COI) in a universal policy is based on the difference between your death benefit and your cash value, so keeping more funds in your cash value will actually lower the cost of your policy! (see also “Cash value in universal insurance.”)
Death benefit
You may change your death benefit at any time (though an insurer may require an up-to-date medical exam in the case of an increased death benefit).
Your cost of insurance is based, in part, on your death benefit, so decreasing your benefit as your needs shrink may be an useful strategy to save money. For instance, if you intend your life insurance policy to cover your mortgage, it is wise to decrease your insurance coverage as you gradually pay off your mortgage in life.
Death benefit options
You may, furthermore, dictate which of the following death benefit options to apply in your universal policy (not all life insurance companies will provide all three options).
- Level death benefit—The death benefit* is equal to the face amount.
- Increasing death benefit—The death benefit* is equal to the face amount, plus the cash value.
- Variable death benefit—The death benefit* is equal to the face amount, plus aggregate premiums.
*In each case, the death benefit can actually be lowered by withdrawals or outstanding loans.
