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Universal Life Insurance Policy In India: Benefits, Types & How It Works?

By Okbima 06 May 2024
universal life insurance policy

 

A universal life insurance policy is a flexible type of permanent life insurance that combines the protection of a traditional life insurance policy with the opportunity for cash value accumulation. Policyholders have the option to adjust their premiums & death benefits. Let’s understand its benefits, types & how it works.

 

What Is Universal Life Insurance?

Universal life insurance is a type of permanent life insurance that offers lifelong coverage along with a cash value option that grows over time. This cash value can be used to pay premiums, increase the death benefit, or be withdrawn by the policyholder. Another key feature of universal life policy is its flexibility in terms of premium payments & death benefits, allowing policyholders to adjust their coverage as needed.

 

Benefits Of Universal Life Insurance

Universal life insurance offers a combination of benefits that term life and whole life insurance may not offer together. Some of the benefits include flexibility, cash value growth, death benefit protection, etc.

  • Flexibility: Universal Life insurance allows you to change how much you pay and the amount of money your family gets when you pass away. So if your income goes up or down, you can adjust your policy to fit your needs.

  • Cash Value Growth: Universal life policy is similar to whole life insurance in that it allows you to save money over time. The money you save grows with interest and you can take it out in cash or borrow against it.

  • Death Benefit Protection: This is the main purpose of all life insurance & universal life insurance guarantees payment to your family when you pass away.

  • Potential for Higher Returns: Some universal life policy policies give you the option to invest money in the stock market, which can give higher profits compared to whole life insurance. However, there's also a risk of losing money due to market changes.

 

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How Does Universal Life Policy Work?

When you purchase a universal life insurance policy, you have the option to adjust your premium payments, within certain limits, based on your financial needs. A portion of your premium goes towards the cost of insurance, while the rest is invested in a cash value account that earns interest over time.

  • Premium Payments: You can decide how much & how often you want to pay for the insurance, as long as you follow the rules set by the insurance company. You can pay monthly, every three months, every six months, or once a year.

  • Death Benefit: Similar to other types of life insurance, a universal life policy pays out a sum of money to someone after the person who is insured passes away. The amount of money can either be set by the policyholder or can change based on how much money has been saved up in the policy.

  • Cash Value Accumulation: Some of the money you pay for insurance goes into a savings account. This money grows over time. The growth is not taxed until you take it out.

  • Policy Loans and Withdrawals: You can borrow money from the policy's cash value or take out some of the money. However, not repaying these loans & withdrawals may reduce the policy's death benefit & cash value.

  • Surrender Value: If you cancel the policy before you die, you will get the cash value of the policy, but there might be charges taken out by the insurance company.

  • Mortality & Expense Charges: The insurance company takes out fees from the premium payments to pay for the death benefit and continue the policy.

  • Guaranteed Minimum Interest Rate: Many universal life insurance policies guarantee you the minimum interest rate on your invested money, which helps your savings grow.

 

Types Of Universal Life Insurance Policies

There are three main types of universal life insurance which include Indexed Universal Life Insurance (IUL), Guaranteed Universal Life Insurance (GUL) & Variable Universal Life Insurance (VUL).

1. Indexed Universal Life Insurance (IUL)

Indexed Universal Life Insurance (IUL) is a type of permanent life insurance policy that offers both a death benefit and a cash value option. With IUL, the cash value portion of the policy is linked to a stock market index, allowing the policyholder to benefit from market gains while providing downside protection through a minimum guaranteed interest rate. This unique feature makes IUL a popular choice for individuals who want growth potential without the risk of losing money in a market downturn.

2. Guaranteed Universal Life Insurance (GUL)

Guaranteed Universal Life Insurance (GUL) is a type of permanent life insurance that offers both a death benefit and a cash value option. Unlike traditional whole life insurance, GUL policies provide a level premium and a guaranteed death benefit for the entire duration of the policy. This means that the policyholder doesn't have to worry about premium increases or the risk of the policy lapsing due to insufficient cash value.

3. Variable Universal Life Insurance (VUL)

Variable Universal Life Insurance (VUL) is a type of permanent life insurance policy that offers both a death benefit and an investment option. With VUL, policyholders have the flexibility to allocate their premiums into different investment options such as stocks, bonds & mutual funds. 

The cash value of the policy can grow over time based on the performance of the selected investments. Policyholders also have the option to adjust their death benefit and premium payments to suit their changing financial needs. However, along with the growth potential, there is also the risk of investment losses.

 

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Factors To Consider Before Buying Universal Insurance Policy

Some factors to consider before buying a universal life policy are the life stage, future goals, premiums, flexibility needs, cash value growth, etc.

  • Life stage & financial obligations: Consider your current life stage, dependents, and debts. Identify the coverage would your nominees need to maintain their lifestyle.

  • Future goals: Think about future financial goals you might want to leverage the cash value for, like a child's education.

  • Premiums: Universal life premiums are higher than term life due to the cash value component.

  • Fees: Be aware of fees associated with policy administration, mortality (death) expenses & any investment fees for variable universal life.

  • Policy Limitations: Understand limitations on withdrawals and loans from your cash value. There might be surrender charges for early withdrawals.

  • Claim Settlement Ratio: Research the insurance company's claim settlement ratio to understand its history of paying out benefits.

 

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Why Buy A Universal Life Insurance With Okbima?

You can buy Universal Life Insurance with Okbima because we give access to multiple insurers, assistance in choosing a policy, and the best customer service.

  • Access to Multiple Insurers: You can compare more than 50 insurance companies for quotes and coverage. This allows you to choose a policy that fits your needs and budget perfectly.

  • Assistance Choosing a Policy: We have a “Team Of Experts” who can assist you in choosing the right plan for you. This can be helpful if you don't know much about the different types of universal life policies.

  • Best Customer Service: We give more focus on customers first by making sure they find a policy that best suits them, rather than just trying to sell life insurance plans.

 

Read More:

What is Life Insurance Policy? Benefits & How Does it Work in India

Types of Life Insurance: Definition & Benefits in India 2024

Postal Life Insurance: Benefits, Types, Eligibility & Required Documents

Best Life Insurance Companies in India - [Updated 2024]

Best Term Insurance Companies in India 2024

 

Conclusion

In conclusion, universal life insurance policies have many advantages. You can choose when and how much to pay for premiums, and the cash value grows over time. You can adjust the amount your loved ones will receive when you pass away. These policies include both a death benefit and an investment feature which help you to grow your money. For the best universal life insurance policy, you can contact “Our Experts”.

FAQs

Universal life insurance is a good fit for those who want permanent coverage throughout their life, with the flexibility to adjust premiums & build cash value.

Unlike term life insurance, universal life insurance doesn't have a guaranteed maturity date. It's designed to accumulate cash value throughout your lifetime, so you can access it through withdrawals or loans.

The early age of 20-30s is the best time to buy universal life insurance. You'll get lower premiums due to good health, and maximize the time for the cash value to grow.

Yes, universal life is a type of permanent life insurance. This means it's designed to provide coverage for your entire lifetime, as long as you keep paying the premiums.

Universal life insurance offers lifelong coverage and builds cash value over time, while term life insurance is for a specific period and has no cash value.

Yes, universal life insurance allows for additional riders that can customize your coverage. These riders address specific needs, such as providing additional payout in case of accidental death or critical illness, or even waiving future premiums if you become disabled.

The amount of Universal Life Insurance you need depends on various factors like debts, income replacement needs, and dependents.

Yes, you can convert a Universal Life policy to another type, like whole life or term life. This allows you to adjust to your changing needs. However, there may be fees and limitations depending on your insurer and the desired policy.

Yes, unlike term life insurance, universal life premiums can increase over time. This happens if the cash value buildup in your policy isn't enough to cover the cost of the death benefit and fees. You can adjust your premiums within limits, but it's important to monitor your policy to ensure affordability.

Universal life insurance can be complex and less predictable than term life. The cash value growth may not be guaranteed and could be lower than expected, and fees can add up.

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