What Is Universal Life Insurance?

Posted on Tuesday, October 6, 2009
Filed under Universal Life Insurance

Universal Life Insurance also known as Flexible Premium Adjustable Benefit Life Insurance Policy is a more compliant insurance policy as compared to the traditional Whole Life Insurance policy. However, it is also a permanent life insurance policy like its counterpart and provides protection to the policyholder until death. In this policy, the account value grows and the policyholder has the flexibility of altering the insurance premiums and the death benefit amount, as per their requirement.

As different to Whole Life Insurance, Universal Life Insurance is broken into two parts, one that is put aside as the death benefit and the other invested as a cash value growth amount. The policyholder is free to make changes to these two accounts by putting in more of the premium money into the death benefit amount, thereby increasing its value. They can also choose to increase the cash value amount instead of the insurance amount. The policy decisions are totally at their discretion.

The cash value part of the premiums that one pays towards the policy are invested into bonds, money market funds and mortgages, the returns of which are credited to their policy as a tax-deferred account value growth. This means that the account value grows at a guaranteed minimum interest rate, which at present stands at 4%. However, to know the actual guaranteed interest rate, you must check your policy for details.

The flexibility to increase or decrease the death benefit amount plus the ease of paying lower or even larger premiums as the case may be for the policyholder at that time, makes Universal Life Insurance Policy a convenient option for families that experience financial ups and downs in life. However, they should note that paying a small premium for a long time, may result in a lapse in the policy and hence a loss of insurance protection.