Universal life Insurance

Universal life insurance is a form of Whole Life insurance. Whole life insurance provides the person continuous guaranteed life insurance coverage until death. Term life insurance expires after a certain amount of time. Term life insurance is more affordable than whole life insurance because it is not expected to last throughout the person’s entire life. Term life is a good option for a young family on a restricted budget. However, universal life insurance offers another option. Even though Universal life is a form of whole life insurance it also costs less than traditional whole life insurance. This gives the benefit for universal life insurance since it still provides permanent guaranteed coverage with lower premiums that do not change based on your age or health or accumulation of cash value.

With universal life insurance you will never have to apply for life insurance coverage again. This is in contrast to term life that can be applied for over and over again. This is good news since you cannot be denied coverage later on if you develop any health condition which is the risk you take when you get term life insurance. The premiums do not increase with a universal life insurance policy either. Whole life insurance policies are fixed and not flexible. You can not increase the death benefit later on. Both the premium and the death benefit remain the same as it was on the day you sign the contract. A universal life insurance policy cannot be canceled or terminated by the life insurance company. There is however some flexibility with universal life insurance policies in contrast to whole life insurance policies.

Universal life insurance offers a mechanism for the accumulation of cash value or savings. This is also another feature that it shares with whole life insurance. Part of the premiums for universal life insurance is deposited into a tax-deferred savings account. The amount in this account is known as its cash value. The life assurance company invests these funds. The gains from these investments are credited to the policy holder’s savings account, which in turn increases the cash value of the policy. The Universal life policyholder can access his cash in the form of a loan at any time. Of course there are fees associated with the loans. Another good thing is that if you are a universal life insurance policyholder and you decide to cancel your policy you can receive a cash value back. This amount of cash buyer would be called the surrender amount. Cash back is not an option when you cancel a term life insurance policy or a traditional whole life insurance policy.

With a universal life policy policyholder does have some flexibility as opposed to a traditional whole life insurance policy. For example, the Universal life policyholder can increase or decrease premium amount and may be able to increase or decrease the death benefit. If you increase your premium amount then you will be adding more to your cash value each month. Be sure to talk to your life insurance agent about whether or not you will have the option if you purchase a universal life insurance policy. Also, such a policy is guaranteed and you can not be cancelled at any time due to the development of a health condition. However, the performance of the insurance company’s investments can play a major factor in the accumulation of the cash value which is risk you face. If their investment does not perform well the cash value well not grow as fast any maybe not at all. Since there is the risk of investment in a universal life policy the premiums are lower than the traditional whole life insurance policy, which does not have any risk at all.

Last updated on Dec 25th, 2010 and filed under Health Insurance. Both comments and pings are currently closed.

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