Universal life insurance is a type of permanent life insurance that offers a lifetime of coverage. These policies typically comprise two different parts: the insurance portion and an investment portion. Because of the investment portion of these policies, premiums are usually high. The insurance company will invest a portion of your premium, and any accrued interest builds up cash value in your policy. That’s why permanent life insurance is often referred to as cash value insurance.
There are two main types of permanent life insurance (whole life and universal), but we’re going to look at the advantages of a universal life insurance policy.
Flexibility
Compared to a whole life policy, universal life insurance offers more flexibility. Also known as “adjustable life insurance,” you’re free to increase or reduce your death benefit any time you please. You can also pay your premiums and any amount at any time after you make your first premium payment. Naturally, there are certain limits, and each policy has its distinct requirements, but overall, universal life insurance offers a tremendous amount of flexibility.
With the universal life insurance policy, you can increase the value of your insurance coverage, but you’ll need to pass a medical exam to do so. You can also decrease your coverage without losing your policy, although there may be surrender charges applied against your policy’s cash value.
Two Death Benefit Options
Universal life insurance offers two death benefit options: an increasing death benefit that’s equal to your policy’s face value plus your cash value or a fixed amount.
Offers Increased Cash Value
As long as you hold your policy, you can increase your premiums if you wish, or you can pay a lump sum up to the policy limit. A portion of your premium will be put into an investment account, and the interest will be credited to your account. Interest grows on a tax-deferred basis, which adds to your cash value.
Can Serve As a Financial Cushion
If you’re facing financial difficulty, you have the option of reducing your payments or stopping your premiums altogether, and using your cash value to pay for your premiums. This can be tricky, though, as you want to make sure that your policy doesn’t lapse if you cease to pay premiums and do not have a sufficient amount of cash value to cover the cost of your insurance.
Universal life insurance policies also come with the added perk of taking out a policy loan.
Full Disclosure of Insurance Costs
When it comes to universal life insurance policies, insurance companies must disclose the entire insurance cost to you. Revealing this information will give you a general idea of how your policy will work.
An All-Around Good Investment
A universal life insurance policy will offer you and your family a lifetime of protection. It’s secure, provides various investment options, and provides the utmost flexibility. For example, in times of financial difficulty, you can choose to alter your premium payments or take money out of your cash value fund. You also have the flexibility of decreasing or increasing your insurance’s face value according to your circumstances.
