Lifetime protection; From the first day the policy is in effect, UL can provide an income tax-free death benefit to help protect your family’s financial wellbeing.
And as long as you keep a positive cash value amount, your coverage can’t be cancelled.

 

Cash value

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Like all permanent life insurance, it has a built-in cash value that grows over time and earns interest. 5
You can take out policy loans against the cash value, use it to pay your premiums, or even use your coverage for cash to supplement your income in retirement. 

Flexible premiums

UL lets you raise or lower your payments within certain limits as your circumstances change. While you may eventually have to pay higher premiums to keep your coverage, that flexibility can make it easier to keep your insurance policy in force if your earnings vary.

 

Tax advantages

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The policy’s cash value grows on a tax-deferred basis, so no taxes are owed on current earnings or interest. Also, the death benefit is paid income-tax-free to beneficiaries.

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The flexibility and freedom of universal life also mean that there are fewer guarantees

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In a whole life policy, the premiums, cash value growth, and death benefit are guaranteed not to change. With a Universal Life Insurance Policy, all those things are designed to be flexible. However, the amount of premiums you pay affects cash value growth. And as you use funds from the cash value, it will affect the amount your family receives when you’re gone. It could even cause the policy to lapse, so you should stay in contact with your financial professional to help make sure your policy continues to meet your needs.

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There are two parts to every premium payment

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COI - The cost-of-insurance component CASH VALUE
The wealth-building component

The COI covers the cost of providing the death benefit and life insurance company administrative fees. It’s typically the minimum premium needed to keep the policy in effect, and the COI rises over time because it is based mainly on the policyholder’s age.

Any premiums paid over the COI amount add to the policy’s cash value, subject to an upper limit set by the IRS. Different policies calculate cash growth in different ways. With Guardian, the minimum interest rate is guaranteed never to be lower than 2% annually – and it can go higher.

Note that minimum premium payments reduce the accumulation of cash value. As COI rises over time, it can result in cash value erosion, to the point that the insurer may require higher premiums in later years to prevent coverage lapse. That’s why many people choose to build the cash value by paying maximum premiums for the first several years – then using those funds if needed to help lower premium costs later on.

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Want the opportunity for more cash growth? Consider variable universal life.

Variable Universal Life Insurance gives you the same kind of lifetime protection and payment flexibility as standard universal life with more investment options: you can invest part or all of your cash value in “subaccounts”. However, you have to choose and manage investments as you would in a brokerage account. And as with a brokerage account, you also assume more risk, including the possibility of losing part or all of your principal.

 

How to get universal life insurance

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Universal life insurance policies can be a powerful financial tool that can help protect your family’s financial wellbeing for decades to come. It can give you the flexibility to help build assets, deal with life’s uncertainties, and even pass on wealth to the next generation. Each policy is tailored to the policyholder’s personal needs and financial strategy, and while premiums are flexible, a healthy 40-year-old male should expect to pay minimum of $3,098 a year for a $500,000 UL policy.10 But guidance is needed to arrive at the right solution for your needs. If you think this type of insurance is right for you, discuss your situation with an insurance professional or financial professional with life insurance experience. If you don’t know such a professional, ask a friend or colleague for a recommendation. Or, Guardian can connect you to a financial professional who can help.

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Frequently asked questions about universal life insurance

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What are the benefits of universal life insurance?

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Universal life is a flexible way to get a permanent life insurance policy and build cash value. The premiums are flexible: you can raise or lower payments within certain limits set by the insurance company. It can be an option to cover people with variable incomes because the cash value also allows them to make withdrawals and policy loans.

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What are the disadvantages of universal life insurance?

With more options than term or even whole life coverage, a UL policy can be complex. The policy needs to be managed: you need to determine how much you want to pay for premiums, and with variable UL, you also have to make investment choices. Those variables, along with a cost of insurance that increases over time, can affect and even detract from the value of your cash value. So you also have to keep an eye on your value balance over time: If it goes down to zero, your premiums could go up, or the policy may lapse.

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What is the difference between whole and universal life insurance?

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A UL policy gives the insured person many of the same permanent protection and benefits as whole life coverage, along with the added benefit of a flexible premium to help accommodate variable earnings. In addition, depending on the life insurance company and policy, you may also have the option to invest your cash value in a variety of market-based investment options, giving you the potential for more growth. On the other hand, universal life offers fewer (and/or lower) cash value guarantees.

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What is indexed universal life insurance?

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Indexed Universal Life Insurance (IUL) is a type of permanent life insurance policy that combines death benefit protection with a cash value component. The cash value of an IUL is tied to a stock market index, such as the S&P 500, allowing the cash value to grow based on the performance of the index, subject to a certain floor and cap. However, your money isn’t invested in the market – the index just provides a reference for how much interest the insurance credits to your account. If you want to maximize potential cash value growth from higher returns, consider a variable universal life policy, where you are actually invested in the stock market.