What is Universal Life Insurance?

Universal Life Insurance Explained

Universal life insurance is a type of permanent life insurance plan designed to provide a lifetime of death cover for the policyholder, while having a savings component on the policy at the same time. It is different to whole life or variable life insurance as the premiums and cover amounts are adjustable, thus giving you more flexibility in organising your policy and finances.

Universal Life Insurance is no longer available in Australia. You may wish to compare Term Life Insurance options instead. 

Advantages of Universal Life Insurance as an Investment

If you are looking to secure a permanent life insurance policy with more flexible terms to keep up with your changing needs and circumstances, then you may want to consider universal life insurance cover. There are a number of benefits that you can obtain with universal life insurance:

  • Flexibility to change your cover amount: Universal life insurance allows you to reduce or increase your death benefit when you need to.
  • Pay your premiums at any time and at any amount: You can adjust the amount of premiums you pay and the frequency of payments after you have paid your first premium when the policy has commenced. For example, you can pay higher premiums when you can afford it, but lower premiums for when your budget is quite small.
  • Cash value component: Like other permanent life insurance policies, universal life insurance has a cash value portion as well as a death benefit. In the event that you experience a financial hardship, you can stop your premium payments and use your cash value to cover the premiums.
  • Loan collateral: When you need to borrow money or take out a loan, the cash value can be used as a collateral against your debt.
  • Death benefit options: There are two options that you can choose for your death benefit. You can opt for a death benefit with a fixed amount or increasing to match the face value of your policy, in addition to your cash value amount.
  • Affordable: Compared to whole life insurance, universal life insurance is considered to be more cost-effective, with access to maximum benefit.

What is Variable Universal Life Insurance Policy?

Variable universal life insurance is very similar to universal life insurance, however, there is one major difference that sets them apart. With universal life insurance policy, you are earning a specific rate of interest within your cash value component, which may not be the best rates to grow your investment. However, with variable universal life insurance, you have the liberty of choosing your own investment options to build your cash value.

How is Universal Life Insurance Different to Whole Life Insurance?

Both being permanent life insurance policies, there a number of notable differences between universal life and whole life policies, such as:

Universal Life Insurance
Whole Life Insurance
Premium payments
More flexible as you get to choose when and how much premiums you pay.
Premiums are set and to be paid for a specific amount of time, usually around 20 years.
Cash Value/Investment Component
You have the freedom to opt for your own investment vehicle.
You have very little to no say in your cash value portion or how it should be investment.
Cost of Cover
Affordable, with room for changes to suit your current condition.
More expensive.
Death Benefit
You have two options, from a fixed one or increasing along your policy’s cash value, while keeping the expenses and minimum premiums payments steady.
Level death benefit.

How Can I Get Universal Life Insurance Quotes in Australia?

Unfortunately, universal life insurance is no longer offered by insurance companies in the Australian market. It has been replaced by term life insurance, which offers similar level of flexibility, with lower premiums and packed with features that you can tailor to suit your needs.

Universal Life Insurance VS Term Life Insurance

Since universal life insurance is not available in Australia anymore, you may wish to consider term life cover that provides similar benefits to that of universal life, with greater flexibility in organising your policy to match your specific circumstances.

Some of the key features that are available with term life insurance, similar to the advantages of owning a universal life insurance policy, which include:

  • Payment frequency: Most insurance providers allow you to choose how often you pay your premiums - you have the option of a fortnightly, monthly, quarterly or yearly basis. You may be eligible for a discount when you pay your premiums annually.
  • Choice of level or stepped premiums: When you choose a premium level structure, you can lock in your premiums at a specific rate and won’t increase despite of any changes in your health. This can be beneficial particularly for applicants who own a term life policy in the early stages of life, because the premiums can be quite low. However, level premiums are often quite expensive to start with, especially if you have limited disposable income. Stepped premium structure is the alternative if you are looking for lower premiums at the commencement of your policy, although it will increase overtime as you age.
  • Adjust your level of cover: Your needs will change overtime, so term life insurance is designed to be flexible so it can meet your changing circumstances. With guaranteed future insurability feature, you can increase or reduce your death cover amount at specific life events, such as marriage, when you buy a house or the birth of your child.

Even though term life insurance does not have a cash value portion that you can utilise as an investment, note that the premiums for universal life policies can be quite expensive. You can invest the difference in cost for your own choice of investment with term life insurance instead.

There are many other benefits and options that you can get with term life insurance, which include and not limited to:

  • Joint policy: Why not include your partner/spouse in your life insurance cover? Not only will the both of you be covered in the event of death, you may also be eligible for a discount on your premiums.
  • Child cover: You can opt for life insurance cover for your children, with may be offered by some insurance providers without any additional cost.
  • Option to link your term life with trauma and/or TPD cover: If you are looking for additional cover against disability as a result of an illness or injury, you can opt to include a trauma and/TPD rider onto your existing life insurance policy, which is more affordable than having them as separate policies.

There are many other features and options that you can benefit from term life insurance. Different insurance providers will offer their own unique features on their policies, and therefore, it is important to compare multiple term life plans to determine the right policy that suit your needs. If you need some assistance in finding policies that are suitable for you without stretching too much of your budget, consider speaking to an insurance adviser who can provide tailored recommendation and help make an informed decision.

Maurice Thach

An insurance researcher and writer for finder.com.au who loves finding an answer to the question "Am I covered for ________?" Maurice has also completed a Tier 1 Life Insurance and a Tier 2 General Insurance Certification under ASIC's Regulatory Guide 146. This means he can confidently provide general advice for life insurance and non-life insurance products.

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