What Exactly is Universal Life Insurance, Anyway?

If you keep up with the latest finance news, you might have come across the term “universal life insurance” being used to describe several new insurance savings products, such as the SingLife Account and Etiqa’s GIGANTIQ.

We’re sure that you have heard of the more common term life and whole life insurance, but what exactly is universal life insurance?

In this article, we’ll introduce the lesser-known sibling among the life insurance family.

What is universal life insurance?

Universal life insurance is a policy that provides a guaranteed death benefit payable at the demise of the life insured. 

Similar to whole life insurance, the coverage would last a lifetime as long as the premiums have been paid. They also combine protection with an element of investment.

Most universal life insurance are single premium plans, but they are uniquely flexible. You need not pay the single premium upfront. Instead, the insurer sets a minimum initial premium, and the remaining premium can be paid at any other time.

Fun fact! Universal life insurance was traditionally offered only to high net worth individuals. 

Historically, universal life insurance policies come in three varieties: Traditional, Indexed, and Variable. The main difference between the three is how cash value is being generated.

What is traditional universal life insurance?

The returns for “traditional” universal life insurance policy are based on the interest crediting rate, which is set by the insurer. 

Many plans offer an initial guaranteed crediting rate. This ensures that even during times where the market is not performing well, the rate would be given to you nonetheless.

After the initial period is over, the returns would again be subject to change and volatility in the market.

After money has accumulated in the account, the policyholder will also have the option of altering premium payments — provided that there is enough money in the account to cover the costs.

Examples of traditional universal life insurance

  • Manulife Heirloom
  • HSBC Jade Legacy
  • SingLife HNW

What is variable universal life insurance?

Variable universal life insurance is similar to traditional universal life insurance, except the returns are not guaranteed.

Since they vary depending on market conditions, tied to the investments made, a variable universal life insurance plan’s returns can be extremely volatile.

You may potentially earn high-interest rates or absolutely nothing at all. 

Examples of variable universal life:

  • AXA Private Wealth VAL
  • AXA Privilege Wealth VAL

What is indexed universal life insurance?

Indexed universal life insurance is a combination of both traditional and variable universal life insurance.

This form of universal life insurance offers both a “fixed returns” account as well as an investment account, which is dependent on the market conditions.

Example of indexed universal life insurance:

  • Manulife Signature Indexed Universal Life

Whole life vs universal life insurance: what’s the difference?

One question you may have right now: universal life insurance sounds just like whole life insurance, so what’s the difference?

Yes, they may sound almost identical, but the main difference between the two is the flexibility offered in payouts, as well as an element of savings.

In summary,

  • Term life insurance is for pure protection only, no financial benefit if nothing happens to you
  • Whole life insurance gives you the option to surrender your policy for cash value. Thereafter, you do not get any death coverage
  • Universal life insurance offers you both a cash value component PLUS death benefits

What are the pros and cons of universal life insurance?

Benefits of purchasing universal life insurance:

  • Good for people who are planning for retirement
  • Best of both worlds, get cash value AND insurance coverage
  • Flexibility in partial withdrawal
  • Ability to pass the policy to your next generation
  • Highly customizable, to suit your needs and preferences

Risks when purchasing universal life insurance:

  • Interest rates may fluctuate depending on market conditions, which is uncontrollable by you
  • You would be entrusting your money with the insurer for decades, so the insurer’s reputation and credit rating matters
  • May not make financial sense if you do not have a big sum of assets to pass on

Is there a new type of universal life insurance?

We’ve talked about how universal life insurance has been traditionally in the past. However, in recent years, there have been new “universal life insurance” products such as GIGANTIQ by Etiqa.

From Tiq’s website:

“GIGANTIQ is a single premium, non-participating universal life plan denominated in SG dollars. It matures on the policy anniversary immediately before you reach 100 years old. It offers financial flexibility, the opportunity for wealth accumulation, and the assurance of life insurance coverage through providing death benefits.”

GIGANTIQ is an example of a special case of universal life insurance

By offering a crediting rate based on market rates, with capital guaranteed, as well as allowing you to withdraw money anytime – those are some benefits of universal life insurance. Thus, you could say that this may be the newest “modern” universal life plan on the market.

Is universal life insurance something to consider purchasing?

Even though universal life insurance products have been traditionally catered towards the people of high net worth, there have been more products that are adopting some key benefits that used to be unique to universal life plans. 

This now makes these products increasingly attractive to purchase with its benefits and perks, but are they really as good as they seem?

We understand that insurance isn’t a one-size-fit-all, we strongly recommend speaking to us before you commit to an insurance plan of any sort. Get unbiased advice from PolicyPal’s financial advisers to review your budget and needs, and receive personalised recommendations today.

How can we help?

Read more:

5 Best Whole Life Insurance Plans in Singapore (2020)

Do you have enough life coverage at your current life stage?

Term Life Insurance vs Whole Life Insurance: Which Is Best for You?



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