Universal Life Insurance Author:    Posted under: Life InsuranceLife Insurance Types

Universal life insurance is a type of flexible permanent life insurance that combines elements found in term life insurance and whole life insurance. Universal life offers the similar low-cost protection of term life while having a savings element, as that of whole life insurance, which is invested to provide an increase in cash value. The flexibility of this type of life insurance is what makes universal life very attractive. It gives the policyholder more control over certain aspects of his policy.

One thing you need to know about universal life insurance is that it is permanent – unless you fail to pay your premiums or cancel the policy altogether, it will never expire. Insurance companies know that they will eventually have to honor your policy and that is why universal life is more expensive than term life insurance.

The premiums that you pay go to three components of your policy: first is the life insurance or mortality charge, second are the fees and administration for managing and maintaining the policy and investments and third are your investments. The investment part of your policy is the one that acts like a savings account that grows over time. This is called the cash value of the policy. When you buy a universal life insurance policy, you are also assured of a certain return of your money. Whatever happens to the market while your money is invested in it, the insurance company has an obligation to pay you. An example would be, if you were guaranteed a return of 5% and the stock market only performs with a 1% return, you are entitled to receive your guaranteed investment.

Universal life insurance allows you to control where you invest your money among several choices provided by the insurance company. Generally, these options would include guaranteed term deposits, investment funds (similar to mutual funds) and savings accounts.

The cash value is also usually used to pay your premiums in the event that you can’t. Until you start paying your premiums again, or until all the savings are used up, they will keep taking out money out from your cash value. Bear in mind that your policy will be cancelled when your savings are all used up.

Also, there are different ways you can access the savings in your policy. You can make a partial withdrawal of your savings, take a loan out of your policy or cancel your policy. Some people find it bizarre to borrow some of their own money from their own savings in the form of a loan and to have to pay an interest until the loan is repaid in full, but that is the regulation with insurance companies. You will receive the cash value of your policy less fees charged by the insurance company when you cancel your policy. Another important thing to note is that you will also have to pay taxes when you take your money out since the savings grows tax free in the insurance policy.

When you pass away, your beneficiaries get the death benefit from your life insurance policy. In some cases, taking money out of your policy may reduce the death benefit. Insurance company policies vary with regards to this so be sure to ask your agent.

Whole life and universal life differs in that with whole life insurance, the savings aspect of the insurance is almost always kept by the insurance company. You often have the option for the life insurance and savings aspects of your policy to be paid out with universal life. Talk to your agent to be sure that when you pass away, your savings won’t be lost.


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