Universal Life Insurance

Is Universal Life Insurance a Good Choice?

If you were looking for a type of life insurance that costs less than whole life insurance, then universal life insurance would be the alternative choice.

Universal life insurance covers the period from the approval of the policy until the payee’s death. The benefit of getting universal life insurance is that the premiums remain the same even if there are drastic changes in a person’s lifestyle or health.

Changes that affect other policy’s payment rates

Since life insurance is complex (i.e. a concatenation of several intertwined components), most companies make sure that you’re generally healthy before they approve your policy.

If you’re a smoker or if you’re exposed to hazardous environments because of your current occupation, they take those things into consideration and your monthly payments are recomputed. The same applies if you already have terminal illness upon the time of application.

A universal life insurance policy glosses over these potential changes and keeps the monthly premiums constant, regardless if you start smoking, etc.

Important insight: period of coverage

Another big difference between term life insurance and universal life insurance is the period of coverage. It might appear to some that term life insurance is a misnomer because no one would exceed say, 30 or 40 years upon the time of approval. What if you live past the 30 years as stipulated by a term life insurance contract?

It’s simple: the insurance company declares that the insurance has already expired, and claims are no longer valid. Universal insurance builds upon the basic principles of term life insurance but extends it: as long as you pay your monthly obligations to the insurance company, the insurance policy remains active.

That’s another beauty of getting universal insurance; as long as you’re capable of extending the period of coverage, the insurance company will allow it.

When does the monthly rate change?

Of course, it’s not economically feasible to keep charging the same rate for all age groups. A 30-year-old man has less probability of dying than a 75-year-old man. Let’s do some basic computations: a universal life insurance that would pay £340,000 in 20 years would cost £167 annually for a 30-year-old-man.

If a 75-year-old-man renews his contract for the same amount of money for the same amount of time, the annual fee would sum up to £1,717. Do you see the big difference? The computation of risk weighs very heavily on the insurance policies. Other types of risk are also integrated in other policies, as we’ve already mentioned before. GP