Why You Might Not Want Universal Life Insurance

photo of a pile of money and the text written life insurance

If you are shopping for life insurance, find out more about universal life insurance and how it works. While considering life insurance isn’t fun, it is worthwhile. We can show you what universal insurance is in a simple way so you can make an informed decision. 

Life insurance replaces your income should you die. But there are many options that can be overwhelming and confusing. You may have heard that a universal life insurance policy is a great opportunity for you to save money but let’s teach you more about it. You may realize you might not want it after all.

What Is Universal Life Insurance?

Universal life insurance, also sometimes referred to as a cash value policy is permanent life insurance. This means it lasts your entire life, from now, until you are old. Included is a savings account. As you pay your life insurance premiums, you also contribute to a savings account. As you build your savings balance, you are able to take out withdrawals, just like any other savings account. 

Cash value insurance policies include universal life insurance as well whole life insurance and variable life insurance. All life insurance policies are designed to cover your income when you pass away. Additionally, these cash value policies add the ability to put money aside and provide cash value. 

What are the Types?

There are 3 types of universal life insurances to be aware of. Let’s talk about them.

Indexed Universal Life

Just like the stock market, your cash value in your universal life insurance is based upon how well the market is doing. For anyone with an indexed universal life insurance plan, the cash value is linked to any one of these indexes – S&P 500, the Dow Jones Industrial Average, and the Nasdaq. Ultimately, if the market is doing well, your cash value will go up. But likewise, if the market isn’t doing well, your value will drop. 

Guaranteed Universal Life

If you don’t want your premiums connected to the performance of the financial market, you might consider a guaranteed universal life policy. Instead, your premiums will stay constant regardless of the index performance. They are set from the start of the policy and this is the least risky of all universal life insurance policies. Please note though that because of this, your cash savings will not build very much. 

Variable Universal Life

Variable Universal Life insurance is a little different in that it allows you to save money via a mutual fund. A mutual fund is a pool of money collected from various investors to invest in securities including stocks and bonds, and other assets. Your cash value is included in this pool of investments.

What are the Premiums and Fees?

Some universal life policies offer a single lump-sum premium or a scheduled fixed premium. Quite a few universal life insurance policies contain a flexible premium option. There is a minimum amount due to cover the insurance and fees and then you can pay additional money that would be applied to your savings.

As for fees, keep in mind that there are fees to have insurance in the first place. Additionally, the insurance company will charge some others. Most of the time, you pay these fees in the first several years of you carrying the policy. Ultimately, you’ll want to weigh the benefits of the policy with the cost.

How Does It Work?

When you pay your universal life insurance bill, your payment contains two parts: 1) your life insurance premium and 2) your savings contribution.

The goal of universal life insurance is to provide you a flexible way to have life insurance AND save money. Your insurance carrier sets the minimum amount due each month. It covers the cost of insurance including your death benefit and administrative fees. 

Any amount you pay above and beyond the minimum goes to your savings account. Expectedly, your balance will grow according to the interest rate set by the insurance carrier.  

Note that you are allowed to contribute up to a maximum amount to your universal life insurance policy. The IRS does limit the amount you can contribute.

Other Options

Most likely if you are considering universal life insurance, you are also considering whole life insurance, variable life insurance, and term life insurance. Ultimately, you’ll want to choose a policy that provides you enough coverage. Let’s show you what the similarities and the differences are.

Whole life insurance is similar in that it is also a long term policy and it builds cash value. However, it differs in that whole insurance has fixed premiums and charges hefty fees if you opt to take a loan against the cash value. 

Variable life insurance is a permanent life insurance policy that includes the ability to invest. Basically, a portion of the premium is allocated to the insurance company’s investment fund.

On the other hand, if you are considering term life insurance, it differs in that it is a temporary policy, usually 15 to 20 years. This is known as pure life insurance and no additional savings are included.

Is Universal Insurance Worth It?

When you are thinking of your future and your finances, it is logical to think that life insurance that includes additional savings is a win-win. Universal life insurance does provide an opportunity to save but does have fees. While you can contribute money to be applied towards savings, you may not save that much money. It just might be too risky. Make sure you educate yourself and consider other options besides your life insurance to invest. Your money may go further by separating the two.


We hope we have provided information so that you know if universal life insurance is a good option for you. Explore your life insurance options as well as ways to save and invest money for your future. No matter what you choose, make sure your life insurance is going to do what you need it to and support your loved ones after you pass.