Individuals looking for a life insurance policy that offers not only a death benefit but also cash while they’re still living often find universal life policies ideal solutions. Learn how these policies work and determine this type of policy meets your needs.
Universal life insurance is more expensive than term insurance but less expensive than whole life. It’s a very flexible policy because it offers you the lifelong savings option of a whole life policy with the low cost of term life insurance. Many consider universal policies as good investments
Universal life policies also offer you the most options in terms of adjusting your premiums, payment terms and death benefits. Employers who offer their employees life insurance may offer them as universal life policies. Universal life policies have a savings component that increases in value but on a tax-deferred basis. The premiums are invested in stocks, bonds or money market accounts. The cash value earns interest, and the policyholder is guaranteed a return on his or her money.
Universal life policies work in the same way as other life insurance policies in that you pay a premium in exchange for a death benefit. However, with universal life policies, you have the option to borrow money on the policy. Universal life insurance policies consist of two accounts: the life insurance policy and the savings account. When you pay the premium, part of it goes to towards the life insurance policy while the balance plus interest goes into the savings account.
You also have a couple different options regarding payment of premiums. You can pay the smallest amount possible and increase your premium after 15 years, or pay a higher premium and be guaranteed the life insurance and a savings until you’re 100 or choose one in between that keeps the policy funded for 30 years.
Although the cost of life insurance generally increase each year, if you’ve had the policy for many years and it was funded correctly, the amount that you’ve earned often pays for the increase so your premiums don’t have to increase.