Universal Life Insurance
Universal life insurance is akin to whole life insurance since it primarily evolved from the concept of whole life insurance. The primary benefits you can get from purchasing a universal life insurance policy is protection and security for your family, flexibility, growth of your account value that is tax deferred, and a death benefit that is tax-free.
Because of universal life insurance's flexibility, you are allowed at anytime to alter your insurance amount as your requirements also changes. However, underwriting approval is required for some of the modifications, which is also easily done.
The universal life insurance policy actually combines the features of term insurance and whole life insurance. Like in term life insurance, you are allowed to vary your amount of coverage and premium payments over time. Also, like in whole life insurance, you are allowed to put up a cash reserve.
The universal life insurance policy is a type of insurance that is based on cash value. This cash value will be credited monthly with a corresponding interest as determined by the insurance company. The insurance plan is likewise debited monthly due to a COI, or cost of insurance charge, and all other fees and charges for the insurance plan which will be directly debited from the plan's cash value in the event that you cannot make the monthly premium payment.
Universal life insurance comes in three types, flexible premium, single premium, and fixed premium.
Universal Life Insurance as Permanent Life Insurance
As a type of permanent life insurance, universal life insurance will remain in force up until the plan reaches its maturity date. This is however provided that the policy owner will keep on making the premium payments every month. Failure to pay the monthly premium payments will result in the expiration of the universal life insurance plan.
As a permanent life insurance, universal life insurance policies can't be cancelled by insurance providers for whatever reason, with the exception of application fraud. As with other types of permanent life insurance, it builds cash value which lowers the risk level of policy holders and insurance providers as time goes by.
Benefits of Universal Life Insurance:
- Also known as adjustable life insurance, universal life insurance is undoubtedly more flexible as opposed to whole life insurance and other permanent life insurance types. You are allowed to pay your monthly premiums in any sum and any time, given that you have made your first payment. Likewise, you can either increase of decrease your chosen death benefit.
- In relation, a universal life insurance plan offers two options for your death benefit. One option is an increasing death benefit that is commensurate to your insurance coverage's face value and amount of cash value, while the other option is a fixed death benefit with a fixed amount.
- With universal life insurance, you are also allowed to increase your insurance policy's face value, given that you have undergone a medical exam that you have passed to be eligible for this perk. You also have the option to lower your insurance plan to the lowest amount possible without having to give up your coverage.
- In terms of flexibility, a universal life insurance plan completely allows you to lower or even halt your premiums and instead utilize your coverage's cash value for paying monthly premiums in times of financial crises. This is of course given that you have accumulated a sufficient amount of money in the cash value account to entirely compensate for the payments.
It is important to note however that you should consider discussing your cash value account's status with you insurance provider prior to stopping premium payments. This is because your universal life insurance may lapse or expire if you stop the premium payments and do not have enough cash value to pay for the premiums.
- With universal life insurance, you are likewise given the option to change the schedule of paying your premiums and its amount. In this context, you are allowed to pay in lump sums or increase your premium payments according to the rules of your coverage.
Likewise, because part of the premiums, less than the COI, is put away in an investment account where the interest goes to your account, the tax-deferred interest accumulates, which ultimately leads to an increase in your cash value account.
- When compared to other life insurance policies, insurance providers completely disclose the complete COI with universal life insurance, which gives you a clear picture of how your coverage functions for your benefit.
On the other hand, in whole life insurance for example, the calculation of returns, administration charges, and the COI will not be disclosed to the policy holder. Also, you won't have the option of choosing where to invest your cash.
- An added benefit of universal life insurance is the option of a policy loan. Note however that you should not always withdraw from your cash reserve since it will deplete the amount of cash value which can lead to troubles at times when you really require cash.
- In addition because of the higher than normal interest rates, the better your policy performs, the higher your odds of growth in the savings fund.
While for smart people, universal life insurance, or other types of life insurance policies is a must, other people fail to see the benefits and only get life insurance after something bad or unexpected happens to them.
When shopping around for potential life insurance policies, consider universal life insurance because it can most assuredly provide you and your family with permanent and reliable protection, flexibility in times of need, tax-free death benefits, and most of all, security.
