Universal Life Insurance Policy

A universal life insurance policy, also known as a permanent policy, is a flexible type of life insurance that allows the policyholder to adjust the premium and amount of coverage.  It’s an affordable way of addressing changing circumstances in a person’s life. 

Why Buy Life Insurance?

Most insurance policies only pay out in certain circumstances.  For example, most people never use their home owners insurance, yet it is important to have in case of catastrophe such as fire or natural disaster.

Life insurance, however, is paid out at an event every person experiences: death.  People commonly purchase life insurance to help beneficiaries afford:

  • Final expenses such as funerals
  • Estate taxes
  • Medical bills, which are often considerable before a policyholder’s death
  • Mortgages, bills, and day-to-day expenses, particularly if the policyholder was the family’s primary source of income

How Much Should I Buy?

The amount of necessary life insurance varies widely from one circumstance to another.  Younger people often look at larger insurance policies because their families have the most debt to pay off. Policies are also often more affordable for younger people because they are low risk investments.  Older people generally set up smaller policies because of higher costs and less need.

Universal life insurance directly addresses the desire for affordable coverage that can address fluctuating needs and circumstances.

How Universal Life Insurance Differs from Term Life Insurance

Unlike term life insurance, which only covers a policyholder for a certain number of years, universal life insurance continues to cover a person thought their entire life, even in those later years as he becomes a larger and larger investment risk for the company.

Term life insurance awards a fixed amount of money at the death of the policyholder, and universal life insurance policies offer this as an option.  However, a second option is that the policy instead has a cash value, and that value increases over time as more premiums are paid in and interest is accrued.

Investing in Universal Life Insurance

The trade-off between these two options is the amount of premiums.  Policies with a fixed death benefit are cheaper than those with a cash value.  Those with a cash value are also subject to fluctuations in the investment market, making payout amounts less predictable.

In addition to paying required premiums, universal life insurance policyholders can also pay in additional funds to increase the cash value of the policy. That cash value then earns interest, further growing the final payout amount.  Unlike some savings options, taxes on this interest do not annually accrue.  Rather, they are only paid when the policy pays out at the time of the policyholder’s death.

Loans and Withdrawals from Universal Life Insurance Policies

An owner of a universal life insurance policy can generally take loans out against their policy, which will then be paid back with interest.  They may also make withdrawals up to the total value of premiums paid into the policy.  These do not need to be paid back, but they permanently reduce the final payout.

Conclusion

Is universal life insurance right for you?  If you’re looking for flexibility, it may well be the answer.  The investment options are also an attractive benefit.  Talk to one of our agents today to further discuss the options offered by affordable universal life insurance.

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