Universal Life Can Be The Best Of All Worlds - But Not Always

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Universal life insurance was designed with the express intention of combatting the venerable whole life insurance policy. The whole life policy had all the advantages of a good life insurance policy except for two things. This policy needed a much lower premium to be more effective in the market place. It also needed more flexibility. The universal life insurance policy has all of these advantages and then some. Here is how it works.

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• The Death Benefit

  Universal life insurance has a guaranteed level death benefit that can be increased or decreased at the will of the owner of the policy. It is always easy to decrease the death benefit but an increase may require evidence of insurability and the approval of the life insurance company. Here is an example. Suppose that you bought a universal life insurance policy for $250,000 at age 29 nearest birthday. Let us further suppose that the limit at that age for non medical insurance was $300,000...

  Two years later at age 31 you decide to increase your death benefit to $300,000. At age 31, however, the minimum that the company will issue on a non medical basis is $250,000 so they will ask you to do a medical. If you are in good health they will give you the increase with no problems but...

  Let us assume that on doing the medical you find that your blood pressure is elevated. The life insurance company may offer you the additional insurance policy but on a rated basis or they may decline the increase outright. Decreasing the amount of your universal life death benefit is always easy but the increase may be denied.

• The Savings Element

  This type of life insurance also has a savings element that can also be increased or decreased. Unlike with the death benefit it can always be increased or decreased at your will. When times are good the flexibility of your saving element is always a good thing. Let us look at what could happen in bad times when interest rates fall...

  If interest rates fall the premiums may not be sufficient to maintain your selected death benefit. If this should occur you may be required to pay an additional premium. If you are unable to do so you would need to reduce your death benefit or otherwise allow the policy to go into a state of lapse. You, of course, can reinstate your universal life policy when you have the money, that is if you can qualify medically for the policy...

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