Universal Life Insurance

Even though you know that you need life insurance, this can be a complicated subject because of the different types of life insurance policies, the different methods of getting life insurance, and the different benefits that come with each of the policies. Therefore, understanding what universal life insurance is can be one of the most important things that you do.


1. What Is Universal Life Insurance

Universal life insurance is a permanent life insurance, which is based upon a value calculated in cash. This means that the policy is maintained and established with the person who is getting the policy. The policy comes with a certain amount of money already attached to it, and therefore there are fees that are paid for this insurance. These fees are paid monthly. However, the thing that sets universal life insurance apart is that if a person was to pay any extra on their policy in any particular month, this money would be credited towards their overall policy. These payments are credited to the cash value of the overall policy each month, and include interest, as well. This means that the amount of the policy can grow according to what a person chooses to pay each month. Also, if a person does not make a payment during any particular month, the payments are deducted from the overall cash value of the life insurance policy. This means that there are no fees for not paying during a particular month - it simply means that the overall amount of the policy will go down.

With universal life insurance, the policyholder is able to determine the amount of the interest that will be credited to the account. They can do this by either making the payments larger or smaller as they see fit, or paying above the minimum amount due. At the time the policy is created, they can also choose the type of policy, linked to a specific interest rate, they would like to take out. Some policies also allow interest rates to be changed due to the financial needs of the policyholder, during the life of the policy. These factors make universal life policies very stable investment options, because only the interest is changed and the cash value of the policy always remains the same.

2. Variable Universal Life Insurance

Variable universal life insurance is a type of life insurance that came from the first universal life insurance policies. Variable universal life Insurance policies work in almost the same way as other policies. A person chooses a particular policy, which has a monthly fee attached to it. Then, they are able to pay that fee, plus anything else they would like to pay. The extra money they pay is included, with interest, in their policies. This can increase the value of their overall insurance policy.

However, with variable universal life insurance policies, it is possible to take the cash value of the policy and move it between different accounts. These accounts work in much the same as a mutual fund will work. This way, the policyholder can pick and choose where their cash goes. They can invest it in regular bank accounts, or put it into stocks or bonds as they see fit. Of course, doing these things might be seen as a gamble because there is always the potential of losing money. There is also the potential of having greater rewards, however, which is why some people prefer to have a variable universal life Insurance policy, which allows them to do whatever they choose with the cash amounts of their policies.

3. Similarities To Whole Life Insurance

Universal life insurance is very similar in some ways to whole life insurance. In fact, it was mostly developed from it. Universal life insurance is similar to whole life insurance because it covers the entirety of a person's final expenses, as well as includes the money they will need to cover final bills and other debts that are left behind. It is also similar because the policy itself is a fixed amount of money. A person can choose to buy whatever increment of the policy they might want. With both types of policies, a person is free to decide upon the amount of money that they would like to insure themselves for, and, along with that, the monthly payments that they feel comfortable with.

Universal, however, has some advantages to whole life. First, the person who has the universal life insurance policy is able to be flexible with the way that they pay and use their interest payments. This can help the cash value grow much faster than with whole life insurance. There are also several differences between universal life insurance and whole life insurance that must be explored.

4. Differences From Whole Life Insurance

There are several ways that universal life insurance policies are different from whole life insurance policies. First, with universal, the policy itself is more flexible in two distinct ways. It is different in the death benefit and in the premium payment.

The death benefit with universal life is usually flexible in that it can be increased and decreased without actually giving up or changing the policy. With whole life insurance, increasing or decreasing the death benefit requires you to cancel your policy and take out a new one. However, with universal, you can do this without having to make adjustments. The premium payments are also more flexible with universal than with whole. A range of payments can be made monthly to the policy. This ranges from the minimum amount needed to secure the policy, to the maximum amount allowed by the IRS.

The biggest difference between whole life insurance and universal life insurance is that with universal, some of the risk of maintaining the death benefit is in the hands of the person who is insured. With a whole life policy, no matter what happens, the amount of the death benefit is guaranteed as long as you have made your minimum payments. However, with universal, the cash value comes into play. If the cash value is no longer big enough to cover the cost of the insurance itself, the death benefits will lapse. Therefore, if a person plays the market with their added cash, or does not pay attention to how much they are taking out of it, they might find themselves without the death benefit. Many companies are now offering an alternative in order to make their policies seem more attractive. With these companies, as long as a person pays their premiums for a certain amount of time, they are guaranteed a certain amount of the death benefit - even if their cash value is completely at zero.

There are a couple of other areas in which universal life insurance is different from whole life insurance. With universal, all the expenses a person will have with the policy, from the cost of the policy to any other charges they might have, are fully disclosed to the person when they buy the policy. Many times, whole life policies do not disclose as much of this information to their policyholders, often leading to a policyholder being charged more than they thought they'd be charged, and not being told of it beforehand.

Also, a universal life insurance policy is often easier to get out of than a whole life insurance policy. The policyholder can more easily access the money that they have put into the policy, and can more easily get out of the entire thing when they are using a universal plan. This makes universal plans more attractive to some people.

5. Uses Of Universal Life Insurance

Many people use universal life insurance policies as ways to pay their insurance in a tax free system. It is often a tax-advantaged system for many people who wish to have life insurance. This is because when a person first takes out this type of policy, they will find that the premium costs they are paying are far greater than any insurance taxes or charges that they might find. Also, the money inside the policy grows with the policy, and this money can be held until a person dies. At this time, the money will be tax free - because the person paying the premiums paid them with after-tax money, meaning that taxes had already been paid on the money before it was used for the policy itself.

This means that the only money taxed with this type of life insurance policy is the growth money. When a person is using this type of policy, they are paying taxes on the investment growth, and because the growth is hardly seen as relative to premiums that people are paying, the money ends up being untaxed in the end. This also means that with most policies, a person can access the money that has built up inside of it during their lifetime without paying taxes on it.

6. Single Premium Universal Life Insurance

With a single premium universal life insurance policy, the policy itself is paid for by one initial payment that is substantial. This means that a person will pay for the policy in one large payment, and will take any charges out of the overall payment that they have already made. This means that they pay for the policy once, and as long as the charges that come out of the policy don't deplete the entire thing, the policy remains as it was.

7. Fixed Premium Universal Life Insurance

With a fixed premium universal life insurance policy, the policyholder will make periodic payments on the premium. These payments will last for a shorter amount of time, such as 8 or 10 years. After the payments have been made, the intention will be that the policy is paid up completely. If payments have not paid for the entire policy by this time, the time period of the payments might be extended. The person who owns the policy can either choose to stop paying their premiums when they originally decided they would, which might cause the policy to expire early if the charges deplete all of it, or they can choose to pay more to entirely fund the policy. They can also choose to lower the death benefit, which will give them more money in their cash value to use for payments for the coming years.

8. Flexible Premium Universal Life Insurance

With a flexible premium universal life insurance policy, the person who has the policy is able to decide how much they would like to pay each time they have to pay a premium. This means that they have more control over their monthly or yearly finances and can decide when to pay large amounts and when to pay small amounts. With flexible premium universal life insurance, the person also gets two other options. They can take a level death benefit, which means that the death benefit will always remain the same, or they can take a level amount at risk, which means that the death benefit will increase depending upon several factors. Most of the time, when a person buys this type of policy, they do so with a large first payment. This allows them to make other payments whenever they choose.

9. Where To Get Universal Life Insurance

Usually, universal life insurance can be purchased at any insurance company that offers life insurance. However, because of the different types of policies, and the different types of coverage that comes with them, it is recommended that a lot of research be done before a policy is purchased. With the right policy, a person can enjoy knowing that their loved ones will be taken care of in the event of their death. They can also know that their final expenses will be taken care of. Many people also enjoy the flexibility of having some extra money to invest.
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