What is universal life insurance?

A universal life insurance policy can give your family the long-term financial protection they need. Learn how a policy from New York Life can ensure long-term financial protection.

Universal life is a type of long-term insurance. Some universal life policies build cash value. With universal life insurance, you can adjust the amount and frequency of your premium payments, within limits, and even increase or decrease your policy’s coverage to keep pace with your financial goals. While it may sound straightforward, it’s important to understand that all universal life policies are not the same. There are different product design details that can impact your policy’s performance¹.

What are the types of universal life insurance?

The two types of universal life insurance policies: 

• Guaranteed* universal life insurance
  Guarantees a death benefit payout and, once you choose a premium schedule, level premium payments for the duration of the policy.
• Variable universal life insurance
  Invests the cash value in investment options composed of stocks, bonds and other investments (similar to mutual funds) that can increase or decrease the value.

Advantages of universal life insurance.

• Long-term coverage for a lower premium than  permanent policies
• Cash value accrual is tax-deferred
• Premium payment amounts can be adjusted up and down, within limits, if the cash value is enough to keep the policy from lapsing.
• Death benefit 

Who should buy universal life insurance?

Universal life insurance products are usually for people who are looking for the most long-term death benefit they can get for the price of the premium. They also are more likely to monitor their policy periodically to ensure it stays on track. Many older people looking to convert their term insurance policy choose universal life because premiums tend to be lower than whole life. 

• Want long-term coverage 
  
• Would like the ability to customize their coverage both now and in the future
• Want coverage that lasts longer than most term insurance policies
• Want the potential to accumulate cash value
• Don’t mind monitoring their policy regularly

How does a universal life policy work?

Universal life insurance is known for its flexibility. A universal life policy allows you to adjust your premium payments and the death benefit amount depending on your needs. This means that if your financial health changes, you can adjust your policy and keep your family protected. This is how the policy works:

• Client makes premium payments 
  Every time you pay a premium into a universal life policy, it is deposited into the policy’s cash value after fees are deducted. The growth of your cash value will be impacted by several factors, including how much you contribute.
• Interest is credited
  On a regular basis, we credit interest to your policy’s cash value, which helps it grow. However, the interest rate used in determining the amount of interest credited to a policy can go up or down.
• Monthly charges deducted
  Every month, we deduct an amount from your cash value in order to cover the costs needed to keep the policy up and running. You need enough cash value in your policy every month to cover these monthly charges.
  • The most significant fee is the cost of insurance charge, which represents the cost of ensuring that we can pay your death benefit when you die. The cost of insurance rate is not guaranteed, meaning that insurance companies can increase or decrease this fee if the company experiences something different from what was assumed when you bought your policy. If the cost of insurance changes, the policy won’t perform as illustrated.
• Cash surrender value
  After the cost of insurance and other fees are deducted, if the universal life policy is designed to accumulate cash value , the  cash value is yours to use during your lifetime.² It’s  your money to do with as you please. Increasing the amount or frequency of your premium payments enhances your opportunity to build cash value.³
• The death benefit
  In the end, it’s all about providing protection for your family or business. A universal life policy gives you several options to structure your death benefit, providing you with the flexibility to design a policy that works best for you.

New York Life Custom Universal Life Guarantee.

• Guaranteed death benefit protection (provided premiums are paid in full and on time)
• Offers limited or no cash value accumulation
• Premium remains fixed once you settle on a premium-paying schedule  
• Face amount can only be decreased (never increased)
• Provides the ability to get some or all your premiums back through the Money Back Option Rider 

What are the benefits of a universal life insurance policy?

Long-term protection
With universal life insurance, you have the potential to keep your coverage if you want to: up to age 80, 90, 100, or even 121.

Cost-effective coverage
Universal life generally provides more death benefit protection for the dollar than whole life, but not as many guarantees. 

Adjustable premiums
Universal life provides the ability to deviate from your scheduled premiums, within limits, allowing you to make updates to meet your changing circumstances. That flexibility can introduce more risk, however, so you need to monitor your policy regularly to ensure that it continues to meet your intended goals.

Cash value accumulation
Some universal life policies are designed to accumulate cash value, which can be used for a variety of purposes.

Tax advantages
Beneficiaries typically do not pay federal income taxes on the death benefits they receive. In addition, any cash value grows tax deferred. And, if your needs change, you can usually access your cash value income tax free.

No-lapse guarantee
This option allows you to keep your policy in effect, even if you stop paying premiums, under certain circumstances. This protection can come in two ways: either embedded as a core feature in a guaranteed Universal Life policy or added as a rider for varying coverage periods in a universal life policy in which there is no guaranteed benefit.

Riders 
Adjustable life insurance policies usually have optional riders. Some may include the Waiver of Premium and Accidental Death and Dismemberment riders 

• Chronic Care Rider
  Provides protection from the financial hardships of chronic care by offering tax-free acceleration to a portion of the policy’s base face amount if the insured becomes chronically ill.
• Money Back Option Rider
  The Money Back Option Rider (MBOR) is a no-cost rider that is automatically included on all eligible policies. It gives the policy owner the opportunity to surrender the policy in exchange for a portion (or, in some cases, all) of its premiums should his or her need for the policy’s death benefit change.

Consider a universal life insurance policy from New York Life for:

• Long-term death benefit. 
• Ability to adjust the amount and frequency of premium payments
• Some universal life policies accumulate cash value
• Face amount can be increased (may require additional underwriting) or decreased
• An Auto-Adjusted Billing service, which is optional at no additional cost, actively monitors your policy and makes annual adjustments to billed premiums to help maintain policy objectives

What are the alternatives to adjustable life insurance?

There are several options other than an adjustable life insurance policy to consider when purchasing life insurance coverage. Here’s how it compares with other common types of life insurance:

Term life insurance
Unlike adjustable life insurance, term policies offer coverage for a set period only, usually 10-20 years, and do not accumulate cash value. As a result, term policies are initially significantly cheaper. Many families count on term insurance for temporary protection, which can be more affordable than long-term coverage.

Whole life insurance
Whole life insurance offers permanent coverage and a cash value. However, whole life doesn’t offer flexibility around premiums and the death benefit.  

Variable universal life insurance
Variable universal life policies also offer long-term coverage, but the cash value is invested differently than in an adjustable policy. With variable universal life, you choose from a range of investment options offered by your insurer.

Related content 

¹Nupur Gambhir, “Universal Life Insurance: What It is and How It Works,” Policy genius, March 19, 2021. Policygenius.com 

²Partial surrenders and unpaid loans, including loan interest, will reduce the cash surrender value and life insurance benefit, and may be subject to income taxes and a 10% IRS penalty if the policy is a modified endowment contract and the policyholder is not yet age 59½. Please consult your tax advisor for more information. 

³The policy will terminate if, at any time, the cash surrender value is insufficient to pay the monthly deductions. This can happen due to insufficient premium payments, if loans or partial surrenders are made, or if current interest rates or charges fluctuate.

*The guarantees of life insurance are based solely on the claims-paying ability of the issuer. Guarantees remain in place as long as all premiums are paid.  

Add the Oregon Policy Form Numbers for New York Life Universal Life ( ICC19-319 51P)  and Custom Universal Life Guarantee (ICC18-318-54P)