When purchasing a life insurance policy, it is important
to understand the type of policy that will work best for you
and fits you and the stage of life you are in. Universal Life
insurance or Flexible Premium Adjustable Life is flexible
in nature and provides the opportunity for the holder to customize
both the amounts and the scheduling of the payments. A universal
life insurance policy has an investment feature built into
it. A cash value is placed on the policy that grows over time
like a type of tax-deferred savings account. When the premiums
are paid, a portion goes into the death-benefit policy. The
other portion is then invested into a fixed-income account.
Universal Life Insurance Policy Type Options
- When death occurs, the benefit is paid out of the savings
portion or cash value of the policy. As the savings account
balance increases, the insurance company is responsible
for less of the cost and therefore the basic cost to the
holder will be less.
- The death benefit is paid out at face value as well as
the additional cash savings account. This coverage typically
costs the insurance carrier more and in turn is more expensive
for the policy holder.
Universal Life Insurance Policy Pros
As your needs and situation changes, Universal Life insurance
provides you with the flexibility to modify your death benefits
to accommodate the changes. It also allows you to modify
the amount of your premiums and the payment periods to best
fit your financial situation. This feature is particularly
beneficial to those who may not have the stability of a
standard paycheck or whose income varies significantly each
month.
Another pro for Universal Life insurance is that the relatively
low interest rate, usually no more than 4.5%, is guaranteed
allowing a minimum return on your investment no matter how
it has performed. If the policy has a no-lapse guarantee,
the benefit and conditions will remain active for as long
as you live, whether that be 65 or 105. However, in order
for this guarantee to be upheld the minimum premium must remain
current.
Universal Life Insurance Policy Cons
If all you are paying on your premiums is the minimum amount,
it is rarely enough to build up any significant amount of cash
value or investment savings. While Universal Life Insurance
allows you to designate your own premiums, if you do not pay
enough from the beginning to maintain the policy, your insurance
may lapse. There is also a possibility that the investment may
do poorly and the return would be minimal, if nothing. However,
this will never fall below the minimum guarantee. Because of
this, premium minimums may increase further into the policy. |
