What Is Universal Life Insurance And How Does It Work

Universal life insurance is one type of coverage that is considered a permanent life insurance policy. This coverage is intended to stay in effect until your death, as long as the premium amounts are paid on time. This type may also be known as adjustable life insurance, and unlike term life with universal life insurance part of the premium that you pay is invested. This coverage is more expensive than a term life policy for the same amount, but it offers benefits that other types of life insurance do not. The first is that you have flexible premiums, even though the premium amount will stay the same. When you purchase your universal life policy you will pay the first payment to start the coverage. After the initial premium amount is paid and the coverage is in effect your premium payments can be flexible. The investment portion of this policy is intended to build up the cash value of this policy, and if the investment portion has an adequate amount of reserves than premium payments for future due dates can be paid from the investment portion. If the investment portion of the policy is not adequate to cover the premiums then you must pay them in order to keep the coverage in effect.

With universal life insurance the performance of the investment component will determine the flexibility of your premium payments, and there are some policies which offer a guaranteed minimum rate of return for the investment component. In other words, you are guaranteed that your investments will offer at least a specific return rate and no less. This adds stability to the investment component, and protects you against large losses from poor investment performance. To get this coverage you will pay more though, because your premiums will be higher due to the additional guarantees. Universal life insurance offers a cash value, and this cash value can offer numerous benefits. After you have held a policy for years the cash value will usually increase substantially. When this happens you can access these funds in a number of ways. You can withdraw the cash value amount, but this will lower the benefits paid on your death, and may cause your universal life insurance coverage to lapse if the premiums are not paid. Another benefit is that the cash value of your policy can be used as collateral for a bank loan if the amount is large enough.

Universal life insurance offers a death benefit, payable to your beneficiaries upon your death, and this amount is not taxable by the federal government. Universal life insurance benefits to your loved ones are also normally protected from any bankruptcy proceedings and do not normally have to be included in probate, so there are no probate costs either. This coverage will give you coverage for the rest of your life, or until you reach age one hundred when some policies may pay out or stop. This type of coverage offers more flexibility that whole life or other types do, but it is not right for everyone.