Universal Life Insurance
How Universal Life Works
Consider universal life insurance. One of the more popular permanent
policies is the universal life policy. What is this universal life all
This policy is permanent insurance which allows for
flexibility in premium payments as well as in death benefit amounts. Think of this policy as a savings account with a life insurance policy
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- Premium Payments
Unlike other types of life policies
your premium payments are deposited into a savings account which earns
interest on your money. Monthly withdrawals are taken from your account
to pay administrative costs and life insurance premium costs.
You can enter into a contract with the company of your choice to
deposit money into your account on a regular basis like you do with any
other policy. Your premiums can be monthly, quarterly, half yearly or
On the other hand, you may choose to deposit larger amounts
into your account in a less frequent manner. You can make your deposits
in your universal life insurance account whenever you feel the need or
desire to do so.
It does not matter which way you choose to go. The important
thing to keep in mind is that there always needs to be sufficient money
in the account to take care of the premium payments.
The company includes in your contract a minimal guaranteed interest rate on the money in your account.
As long as you keep depositing the minimum amount required your universal life policy cannot fall into a state of lapse.
- Savings Element
You may want to know if it would be better to buy term insurance
and just put the rest of the money into a savings account. The savings
portion of your deposit has a guaranteed interest rate.
You can deposit
money when you want to. Term life insurance is temporary insurance. You
buy a term policy for a specific number of years. If you need life
insurance after that period of time you may not be able to qualify for
You may want to use your saving plan for a college fund for your children or possibly to top up your retirement fund.
The life insurance attached to your plan, though term based,
lasts much longer that the better known term policies. You can keep your
universal life insurance policy for the rest of your life.
reduce the amount of death benefit any time you choose. You can also
increase the death benefit but, depending on age and physical condition
you may need to prove that you qualify for the additional coverage.
- Policy Riders
You can add the waiver of premium
rider to your policy. This provides that if you should become disabled
for a minimum of 6 months the insurance company will pay your premiums
for you for as long as you are disabled, even if it is for the rest of
You can also add the double indemnity rider to your policy which provides double the death benefit if your death occurs accidentally.
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Universal Life Insurance Explained