Universal life insurance is actually a type of permanent life insurance. With the help of universal life insurance, the insured is insured for the duration of their life, as long as they pay premiums and meet all the other necessary requirements of their policy to maintain their insurance coverage. Like many long-term life insurance policies, universal life insurance combines a savings component (called "present value") with lifetime protection. If you die, the contract death benefit will be paid to your beneficiaries.
WHAT ARE THE BENEFITS OF UNIVERSAL LIFE INSURANCE?
In addition to lifetime protection, there are a few additional features of universal life insurance: You can withdraw money or borrow against the cash value of the contract.
Its current value generates interest. You have flexibility with bonuses. You can adjust the death benefit.
Withdraw or borrow money
When you pay your universal life insurance premium, part of each payment is used to pay the death benefit. Another part would also increase the current value of the policy. Over time, once the money has accumulated, you can withdraw or borrow money against the cash surrender value of the contract (the amount available varies depending on the company).The rules regarding how and when to proceed to vary depending on the insurance company and the policy. However, it is important to know that this can reduce your death benefit, have tax consequences or even expire your policy.
Earn cash value interest in your policy
According to the Insurance Information Institute (III), the current value of universal life insurance generally deserves interest that corresponds to current money market rates. Of course, it is important to note that the interest rate varies depending on the market, which means that the interest you receive may also fall. However, some companies offer protection against this with a minimum guarantee for the execution of the policy.
Flexibility with bonus
If the cash value of your account can cover the costs, you may have the option of reducing or suspending your universal life insurance premiums for a period of time, says III. This can be useful when the money is running out and you are looking for ways to reduce your monthly bills. But there can also be negative consequences, explains III. For example, your coverage may end when you use the cash value of the account to pay premiums.
Please note that you will still have to pay premiums to keep your policy up to date. If you don't pay your premiums, your policy will expire (which means you are no longer insured). If you are unable to pay a premium on time, your insurer may offer you a grace period, during which time you will have to recover a missed payment before coverage expires. Read your policies or contact your agent for more information.
Adjust life insurance
The flexibility of a universal life insurance policy also extends to death grants. At some point, you may want to increase the amount paid upon your death. This is something that some insurance companies allow if you have a medical exam. You can also reduce the death benefit to reduce the cost of the policy. Keep in mind that the premium you pay may increase as the contract death benefit increases.
WHO CAN CHOOSE UNIVERSAL LIFE INSURANCE?
The III offers some guidelines on how you can decide if permanent life insurance such as universal life is right for you: If you are looking for a blanket that will last a lifetime. If you stick to your insurance premiums, Universal Life pays your beneficiaries a death benefit, no matter when you die.
You have long-term savings goals.
If you want to save on deferred tax and don't expect to use the funds for long periods of time, Universal Life may be an option for you, says III. The cash value option, which is part of a universal life insurance policy, can optionally be withdrawn or loaned in an emergency.
The good idea is to speak to a local insurance agent to better understand your life insurance options. They can help you review your personal situation and your long-term goals and choose a policy that is a good option for you and your family.