Universal Life Insurance


With life insurance increasing its penetration in the Indian market, the kinds of policies available to insure one’s life have also grown in number. While traditional policies such as whole life insurance and term life insurance are still the most preferred, many individuals are also looking at other options, such as a universal life insurance policy. This policy is distinguished from others due to the saving component that is attached to it. Flexibility is also another premium feature.

Understanding universal life insurance 

First, let us understand what life insurance is. It is a policy wherein the policyholder pays premiums in a lump-sum payment or at regular intervals to ensure a sum assured that will be paid to the nominee/s in case the policyholder passes away. Now, while all insurance policies require premium payment, a universal life insurance policy uses that premium for two purposes: to cover the cost of your insurance policy and to accumulate savings. After the insurance portionfrom the premium payment has been allocated, the remaining amount is saved in an account where it gains interest.

Some universal life insurance policies also utilize the saving component to invest in market-linked instruments. Since these are dependent on market conditions, the return on your investment may also be as per market performance.

Features of universal life insurance

Premium flexibility  

The most appealing feature of universal life insurance is that the premium can be customized according to the policyholder’s budget at the time. The minimum amount in this scenario is the amount required to safeguard your insurance policy and build the sum assured corpus. Insurance experts suggest that one should pay a heavy premium at the start of the policy and reduce it as the policy duration crosses a considerable number of years. An estimation of the premium can be achieved by using the life insurance premium calculator.

Coverage changes as per policyholder’s needs 

Another interesting feature of a universal life insurance policy is that the coverage can be adjusted as per the needs of the policyholder.

Encashment of savings after a certain period 

The savings that have been accumulated from the premiums can be encashed after the corpus reaches a certain value. One can also take out loans on this amount.

What are the types of universal life insurance? 

There are namely three types of universal life insurance:

1. Indexed universal life insurance policy 

This type of policy uses a portion of the premium to invest in indexed funds. Since these are linked to the market, the returns too are dependent on the market performance. If the market is performing well, the cash value rises and if the performance is not good, then the cash value decreases, too.

2. Guaranteed life insurance

The interest rate is fixed on this type of life insurance plan; it stays constant throughout the policy duration. This policy is preferable for risk-averse individuals who are more concerned with having a life cover than wealth creation.

3. Variable universal life insurance 

In this type of life insurance policy, the company invests the cash value accumulated into a mutual funds plan. Accordingly, the returns you earn are as per the performance of the mutual funds. You will also be charged a fee for the administration and management of your cash value. A life insurance premium calculator can be used to understand the returns one may possibly receive depending on the trends of the past years.

Why you should purchase a universal life insurance policy 

Here are some benefits you can accrue by opting for universal life insurance:

Insurance is achieved with savings 

Unlike regular life insurance, a universal life insurance policy allows you to save money as well as secure the future of your loved ones in case anything unfortunate happens to you. It is like hitting two targets with a stone.

The premium is as per your budget 

Since the premium in this kind of policy is adjustable as per your budget, you are spared the hassle of arranging for a fixed amount of premium even when you may not be able to afford it.

Now that you know what life insurance is and what universal life insurance is, in particular, we hope you make the right decision that can secure your loved ones’ future. We also suggest that you consult a financial expert before going ahead with any financial decisions.

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