Understand Universal Life Insurance in Simple Terms
Life insurance ensures financial security for individuals and their dependents in uncertain times. More than 20 life insurance companies are available in the Indian insurance market, offering different types of life insurance to accomplish the changing financial needs of individuals. You can compare and buy a suitable life plan from a term life, endowment plan, whole life plan, group plan, retirement plan, ULIP plan, and pension plan.
Finding the best life insurance policy can be overwhelming for anyone. If you're looking for a policy that adapts to your changing needs and offers a mix of protection and investment, you're in the right place. Universal Life Insurance stands out as a versatile and flexible solution for you. Let's understand Universal Life Insurance, its benefits, importance, and types in simple terms to help you make an informed decision.
Table of ContentWhat is Universal Life Insurance in India?
Universal Life Insurance is a unique type of life insurance policy that offers life coverage and investment components. Simply put, it offers a life insurance policy and a savings or investment account under a single plan. What sets a Universal Life Insurance policy apart from other types of life insurance is its flexibility in selecting the premium amount and death benefit. With Universal Life Insurance, the policyholder can plan their long-term investment and avail of the cash value during their lifetime whenever required.
How Does a Universal Life Insurance Policy Work?
When you buy a Universal Life Insurance Policy, the premium you pay splits into two parts. The first part of the premium funds your life cover, and the second goes to your savings and investments account. Depending upon the financial suitability of the policyholder, they can select the premium amount they wish to pay. However, the minimum premium cost is fixed by the life insurance company.
Any additional amount paid towards Universal Life Insurance goes to the savings account, which grows at an interest rate set by the life insurance company. This growth is affected by market conditions and fluctuations. The life insurance advisors suggest paying the maximum amount of premium in the initial years, which helps collect a good cash value. This cash value is utilized to pay future premiums at the later stages of your life.
What are the Key Components of Universal Life Insurance?
A customer can secure the following key components under Universal Life Insurance.
Death Benefit
This is the core of any life insurance policy, including Universal Life. Death benefit is the amount your beneficiaries receive when the sole policyholder passes away. The plus point of Universal Life Insurance is that you can adjust the death benefit as your needs change.
Cash Value
Think of this as your policy's savings account. A portion of your premium paid towards Universal Life Insurance goes into this account. Since the Universal Life Insurance Plans offer a guaranteed interest rate, cash value keeps growing over time. The exciting part is that you can use the cash value to pay premiums or even take out loans. It's your money working for you.
What Types of Universal Life Insurance Plans are Available in India?
Let’s look at the types of Universal Life Insurance plans available in India.
Indexed Universal Life Insurance
In indexed universal life insurance, the cash value depends on market performance. If the market is doing well, the cash value increases. In reverse, the cash value decreases if the market is not doing well. Ultimately, this shift affects your premium rates towards Indexed Universal Life Insurance.
Guaranteed Universal Life Insurance
Under a Guaranteed Universal Life Insurance Plan, life coverage is the primary focus rather than building the cash value. The interest rate is fixed in Guaranteed Universal Life Insurance Plans, and the premium rates remain universal for the entire policy period. Hence, the Guaranteed Universal Life Insurance Plan is less risky than other types. The policy is valid until the premiums are paid on time.
Variable Universal Life Insurance
In the Variable Universal Life Insurance, a portion of cash value is invested into the mutual fund, ensuring security with life coverage. The interest depends upon the market conditions, and the policyholder needs to pay a fee for the same.
What are the Benefits of Universal Life Insurance?
Purchasing Universal Life Insurance comes with several advantages for the policyholder while ensuring life cover and savings protection. Let’s look at the benefits of universal life insurance in detail.
Flexible Premium Payments
Universal Life Insurance lets the policyholder select the premium payment amount and frequency depending on their financial suitability. You can lower your premium if you're in a financial burden. Conversely, if you find yourself in a more comfortable position, you can increase it. Additionally, the policyholder can select the premium payment frequency from annual, half-yearly, quarterly, or monthly modes or pay in a single go.
Investment Opportunities
Universal Life Insurance isn't just about life cover protection; it's also about financial growth. The cash value component can be invested in various ways, from bonds to stocks. The growth potential can add an extra layer of financial security for you and your loved ones.
Open Access to Cash Value
Do you need some extra funds for unexpected expenses? With Universal Life Insurance, you can tap into the cash value without penalties. It's like having a financial safety net you can rely on when life puts you in a hard shell.
Tax Advantages
Nobody likes taxes, but with Universal Life Insurance, you get some perks. The cash value grows tax-exempted, meaning you will only pay taxes on the growth once you withdraw it. The premium paid towards the Universal Life Insurance Plan provides tax benefits under Sections 80C and 80D of the Income Tax Act, 1961. Plus, death benefits are generally income-tax-free for your beneficiaries.
Loan Availability
The policyholder can avail of loans under Universal life insurance to fund their financial emergencies. This way, the policyholder doesn’t have to surrender the policy.
Final Thoughts
Universal Life Insurance is more than a policy; it's a financial tool that evolves with your financial circumstances. Whether you're a young professional or an individual navigating the complexities of life, Universal Life Insurance is the missing piece in your financial puzzle. Know that Universal Life Insurance may charge additional fees to use the lying features. But you need to be stress-free about the saving part of Universal Life Insurance as it doesn’t carry the risks.
We suggest you connect with a professional insurance advisor to understand the terms and conditions thoroughly before making a purchase of a Universal Life Insurance policy. To reduce the hassle, find a life insurance agent nearby using RenewBuy Advisor Connect. Or get professional assistance from RenewBuy POSP Advisor and buy a suitable type of life insurance policy from the best life insurance companies in India.
