Universal Life Insurance

What is Universal Life Insurance?

Universal life (UL) insurance is a kind of permanent life insurance that provides flexibility in premiums and death benefits along with a savings element. While it provides a sum to your family in case of your demise, it also helps in creating wealth over time.

Unlike term life insurance, universal life policies can build cash value. This cash value earns interest at a rate set by the insurer, which can change over time but typically has a minimum rate. If the investments don’t perform well, the cash value may decrease and premiums might increase. 

Whether planning for retirement, providing for loved ones, or securing your family’s future, this type of insurance is a versatile choice for individuals in the UAE.

What are the Benefits of Universal Life Insurance?

Here are some of the key benefits of universal life insurance (UL) policies -

• Flexible Premiums - Unlike whole life insurance, which comes with fixed premiums, a universal life plan offers flexible premium payment options within certain limits. As a policyholder, you can pay more than the cost of insurance (COI) — the extra amount is added to the cash value and earns interest. If there's enough cash value, you can decrease or skip payments without risking a policy lapse.
• Flexible Death Benefit - A universal life policy may allow you to increase your death benefit, although this might require a medical exam. You can also reduce the death benefit to lower your premiums.
• Potential Cash Value Growth - A UL policy can build cash value, similar to a savings account. The cash value yields interest depends on either the market performance or a minimum interest rate, whichever is higher. As the value grows, you can take out part of it through withdrawals or loans.
• Policy Loans - A key benefit of universal life policies is that you can borrow against its cash value. Loan interest rates are usually lower than personal loan rates and don’t require a credit check. However, any unpaid loans will reduce the death benefit by the amount owed.

What are the Types of Universal Life Insurance Policies?

Discussed below are the three major types of universal life plans —

• Indexed Universal Life Insurance (IUL) - With IUL, the cash value depends on the market's performance. When the market does well, the cash value grows. However, if the market performs poorly, the value decreases — this can affect your premiums.
• Guaranteed Universal Life Insurance - This plan is more stable than other types of permanent life policies. It offers a fixed interest rate, and the premiums remain the same throughout the coverage. As long as premiums are paid on time, the coverage stays active. Guaranteed plans focus mainly on providing life coverage and offer minimal cash value growth.
• Variable Universal Life Insurance (VUL) - VUL invests part of the cash value into mutual funds, with the interest accumulating depending on market conditions. This makes it riskier than Guaranteed Universal Life Insurance but potentially more rewarding. Note that VUL policyholders are charged a fee for the investment component.