Universal life insurance is a type of permanent life insurance that provides lifetime coverage and a savings component. Determining how much universal life insurance costs depends on several factors.
What is Universal Life Insurance?
Universal life insurance combines a death benefit with a cash value account within a single policy. It provides lifetime protection as long as you continue to pay the premiums. Some key features include:
- Lifetime death benefit coverage
- Flexible premium payments
- Cash value account that earns interest
- Ability to adjust death benefit and premiums
With universal life insurance, part of each premium payment goes toward the cost of insurance and expenses, while the remainder goes into the policy’s cash value account. This account earns a variable interest rate, allowing it to grow tax-deferred over time. You can access this cash value through policy loans or withdrawals for any reason.
Factors That Determine Cost
Many factors affect the monthly or annual premiums for universal life insurance. The main factors include:
Age and Health
Older age and poorer health lead to higher premium costs, as there is a higher mortality risk. Premiums are lower for younger and healthier individuals. Things like chronic illness and family medical history impact rates too.
Coverage Amount
The higher the death benefit you want, the more it will cost. Think of the death benefit as the amount that will pass tax-free to beneficiaries when you die. Often people choose a amount to cover income replacement, final expenses, and outstanding debts.
Policy Term
Universal life insurance provides lifetime coverage, but longer guaranteed coverage terms can increase the premiums slightly. Most policies allow you to lock in rates for 10, 15, 20 or 30 years.
Payment Schedule
You can choose to pay premiums monthly, quarterly, semi-annually or annually. More frequent payments nudge rates up slightly. Paying annually produces the lowest overall premium.
Cash Value Growth
Higher assumed interest rates for the policy’s cash value account lead to higher premiums. Insurers factor in these assumed growth rates when setting rates.
Riders and Features
Additional riders like accelerated death benefits, waiver of premium, and accidental death increase the overall policy cost. But they can provide valuable benefits in certain situations.
Sample Monthly Premiums
To give an idea of how universal life insurance premiums vary, here are some sample monthly costs for a 30 year old non-smoking male in excellent health:
- $250,000 Death Benefit, $25,000 Cash Value – $43 per month
- $500,000 Death Benefit, $50,000 Cash Value – $83 per month
- $1,000,000 Death Benefit, $100,000 Cash Value – $160 per month
A 30 year old female with the same parameters would pay around 10-20% less. For a 60 year old couple, you may see monthly costs around $160 for $250,000 of coverage. Those with health issues may pay higher premiums.
Cash Value Component
One appeal of universal life insurance is the cash value account that grows tax-deferred. The cash value funds come from:
- Premium payments above the cost of insurance
- Interest earned on the account’s cash balance
This account accrues interest based on a declared crediting rate. Many policies offer rates linked to indexes like the S&P 500. The cash value grows tax-deferred and can be accessed any time through loans and withdrawals.
This cash value element adds to the overall premium costs due to the assumed interest that will be credited. But it provides additional living benefits beyond just a death payout.
Additional Out-of-Pocket Costs
Beyond the regular premiums, there may be a few additional costs with universal life insurance:
- Application/underwriting fees are usually $100 to $300
- Annual policy fee around $30 to $60 per year
- Surrender charges if you cancel the policy during the first 10-15 years
- Interest on policy loans if you borrow against the cash value
But overall, these expenses are quite minimal compared to the policy benefits.
How Quotes and Rates Are Determined
The best way to find your specific universal life insurance rate is to get a customized quote. Here is how the quote and rate process works:
- You fill out a quick form with basic details including age, gender, amount of coverage desired, health, etc.
- This information generates an instant quote range based on large actuarial databases.
- Then you provide additional medical and lifestyle details through an application.
- The insurer reviews your application through underwriting. This verifies your health status and eligibility.
- After underwriting approval, you receive the final rate offer for your specific situation.
It’s quick and easy to go through this quote and application process. Often it can be completed in under 5-10 minutes start to finish.
Finding the Best Rates
While getting quotes, it helps to keep some tips in mind to find your most affordable universal life insurance rate:
- Shop different insurers – rates can vary quite a bit between companies.
- Work on improving your health – losing weight, quitting smoking, and lowering blood pressure can reduce premiums.
- Consider bundled policies – packaging life insurance with home, auto, etc can lower overall insurance costs.
- Pay annually – the least expensive way to pay premiums.
- Limit riders – only add ones you may really use to avoid unnecessary add-ons.
- Maintain good credit – insurers often check credit as part of underwriting.
Shopping around and comparing quotes is key. It also pays off to have a knowledgeable life insurance agent guide you through the process.
Is Universal Life Insurance Right for You?
While universal life insurance costs more than term insurance, the lifetime coverage, death benefit guarantees, and cash value element bring added benefits. It functions as both life insurance and a tax-advantaged savings account.
But it still carries higher premiums than term life insurance. So you need to determine if the additional advantages are suitable for your financial situation.
Here are some cases where universal life insurance makes sense:
- You want lifetime protection
- Your time horizon extends beyond term policy periods
- You want to use the policy for estate planning needs
- You want to accumulate long-term cash value
- You need flexibility to adjust the death benefit
But it likely isn’t the best choice if:
- You just need short term coverage for 10-20 years
- You want pure insurance at the lowest cost
- You don’t plan to fund the cash value account
- You have limited budget for premiums
Ultimately the right type of life insurance depends on your specific goals, needs, and finances. Speaking with a trusted insurance agent can provide the guidance to make the optimal choice.
The Bottom Line
Universal life insurance can provide strong lifetime guarantees for policyholders seeking permanent protection. Typical costs range from $30 to $200 per month for most healthy applicants. Exact premiums depend on the death benefit amount, age, health, term length, cash value projections, and riders. Use quotes to find rates customized specifically to your situation. This takes the guesswork out of determining the precise monthly and lifetime costs.
