Universal life insurance can be a great financial tool for securing your future. But as soon as you look into a policy, you’ll notice there are many different options available. This can make it confusing when trying to choose the right one for your circumstances.

That’s where we can help. Here we’ll go through the four types of universal life insurance available, including looking at who they are best suited for. By the end, you should have clarity about the best life insurance policy for you.

What is Universal Life Insurance?

Universal life insurance itself is a subset of permanent life insurance. Unlike with whole life insurance, instead of the cash value of your policy being placed in a savings account, it is invested. However, there are a few ways this can be done, leading to the different types, which are:

1. Traditional or Non-Guaranteed Universal Life
2. No Lapse Guaranteed Universal Life
3. Indexed Universal Life
4. Variable Universal Life

All of these policies have an investment component, but let’s take a look at how they differ.

Related Article: https://www.marathoninsurance.ca/blog/what-is-universal-life-insurance/

1. Traditional or Non-Guaranteed Universal Life

Here we have the standard policy, which is the most basic form of universal life insurance. Here you’ll get flexibility in your premium payments, along with the investment component that will allow you to accumulate a cash value.

Key Features

Adjustable Premiums – As long as you pay the minimum required to keep the policy active, you can usually modify the amount and frequency of your premium payments.

Interest Rate Linked to Performance – The interest rate on your cash value is tied to your insurance company’s general portfolio performance. This can fluctuate, hence the cash value on the policy not being guaranteed.

Death Benefit Flexibility – You can generally choose between a set death benefit or one that increases as the cash value grows.

This type of policy is appealing to individuals who want the security of a permanent life insurance policy with the potential to grow their savings. However, since the interest rates are not guaranteed, the cash value accumulation may not be as reliable as other options.

Best Suited For

This type of policy appeals to those who want the security of permanent life insurance but with the potential to grow savings. While interest rates are not guaranteed, this is more of a low-risk approach that gives you some flexibility.

2. No Lapse Guaranteed Universal Life

No lapse guaranteed universal life is a more conservative approach. Often just called guaranteed universal life or GUL, it’s a policy that you never need to worry about as long as you pay your premiums. It focuses more on guaranteeing coverage than building cash value.

Key Features

Guaranteed Premiums and Coverage – Your premiums are fixed and guaranteed to stay the same. As long as you make the payments, the policy will not lapse. This is even if the cash value is insufficient to cover the costs.

Minimal Cash Value – This is not the policy for those who want a high cash value. It’s more suited to those who want no risk of their policy expiring.

Lower Investment Risk – The advantage for many is there is a much lower investment risk and your policy won’t be vulnerable to market performance fluctuations.

Best Suited For

This policy is great for those who don’t want any surprises with their life insurance policy. It will give you lifelong coverage with fixed premiums. You’ll have a stable death benefit for your beneficiaries but the cash value will likely be lower than with other policies.

3. Indexed Universal Life (IUL)

Here we have a more complex version of universal life insurance. Here you’ll be given more freedom to link your cash value with a specific stock market index, such as the S&P 500. This means more risk but also potentially higher rewards.

Key Features

Interest Linked to Stock Market Index – The cash value growth is linked to a stock market index. However, you won’t have to worry about directly investing in the stock market. This helps to reduce your risk of loss.

Growth Cap and Floor – These types of policies often include a cap on returns, meaning there is a maximum limit to how the cash value can grow. However, they also often come with a floor so the policy doesn’t lose value to offer you some protection.

Flexible Premiums and Death Benefits – Similar to other policies, here you’ll be able to adjust your premiums and death benefits over time.

Best Suited For

Indexed universal life insurance is great for those who want to take advantage of market gains but without fully investing in the stock market. It’s a good middle ground for those who want more growth in their cash value but without the highest level of risk.

4. Variable Universal Life (VUL)

Variable universal life (VUL) is the most investment-heavy option. Here you’ll get the opportunity to divide the cash value into various sub-accounts, which is similar to mutual funds. This means the cash value can fluctuate, potentially leading to high rewards.

Key Features

Direct Investment in Sub-Accounts – Unlike the IUL where your cash value is tied to a stock index, here you can invest in a range of different funds.

High Risk, High Reward – As the cash is invested directly, it can grow very quickly. Equally, it can fall quickly as well. It’s important to note this doesn’t affect the death benefit, just the cash value.

Flexible Premiums and Death Benefit – Like with a few other options, you’ll get flexibility in your payments and death benefits.

Best Suited For

VUL is the best option for those comfortable with taking more risks. However, it’s often only recommended for those with a good level of pre-existing investment knowledge. If you make the right moves, this plan offers the highest growth potential.

Final Thoughts

Now you know the different types of universal life insurance, it’s important to work out which one is best for you. This largely comes down to your risk tolerance and the level of flexibility you want from your insurance plan.

Everyone is different, so one plan isn’t better than another. It’s important to be fully informed, and speaking to an insurance broker if you have any questions is a great idea. Contact Marathon Insurance today and we’ll be happy to find the right life insurance policy for you.