Universal life insurance offers flexible coverage with the ability to adjust your premiums and death benefit over time. This type of policy can be a great option for those seeking long-term protection, but there are several common mistakes to avoid when purchasing universal life insurance.
By understanding these pitfalls and taking proactive steps, you can ensure that your policy meets your needs and provides the financial security you’re looking for. Many individuals rely on the best universal life insurance to provide a combination of lifelong coverage and investment growth.
Overlooking the cost of insurance:
One of the most common mistakes when buying universal life insurance does not fully understand the cost of insurance within the policy. Universal life insurance policies include a base cost for the death benefit and administrative fees, which can fluctuate over time. While the policy has a cash value component that grows, the cost of insurance can also increase as you age. If you fail to account for this, you may find that the cash value of your policy is not enough to cover the rising costs, possibly causing the policy to lapse.
Ignoring the policy’s flexibility:
Universal life insurance is known for its flexibility, allowing policyholders to adjust their premiums and death benefit as their needs change. However, many people fail to take full advantage of this flexibility. They might lock themselves into a fixed premium or neglect to review their policy periodically, missing opportunities to adjust coverage as their financial situation evolves. To increase the benefits of universal life insurance, take the time to understand how you can alter your policy to match your changing needs over time.
Underestimating the importance of cash value growth:
Another mistake to avoid is underestimating the importance of the policy’s cash value growth. The cash value component of a universal life insurance policy grows based on interest rates, which can fluctuate. If you don’t pay attention to the growth rate or make additional contributions to your policy, the cash value may not grow as expected, affecting both your future premiums and your death benefit.
Choosing the Wrong death benefit option:
Universal life insurance policies typically offer two death benefit options: a level death benefit or an increasing death benefit. A level death benefit pays the face value of the policy, while an increasing death benefit includes the cash value in the payout. Choosing the wrong option can have a significant impact on your policy’s performance and your beneficiaries’ payout. If you’re focused on long-term growth, an increasing death benefit may be more appropriate, but if you want predictable costs, a level death benefit might be better.
