Universal Life Insurance
Universal Life Insurance is a form of Permanent Life Insurance, with considerable differences between the two. This form of insurance was created to provide customers with a better understanding of their policy and relieve them of some of the stricter policy provisions that come with standard whole life insurance.
Universal Life Insurance: How it Works
With universal life, the policyholder can arrange the benefits to meet his or her needs. The policyholder controls how much of the premium is paid toward the insurance and toward the savings, and can change the value of the policy as well. There may be a specific limit to how much the policy can be changed at one time, especially if the policyholder does not provide another health exam. Increases in the death benefit usually require updated proof of insurability. Universal life policies also allow for changing the amount and timing of premiums from time to time, as long as the premium covers the cost of monthly maintenance of the policy and maintains a basic benefit amount. If you fail to cover these minimum premiums, the death benefit of your policy can be greatly reduced.
Choosing a Universal Life Policy
Universal life policies usually have a minimum interest rate, but the rates can fluctuate similarly to a money market account. Therefore there are no guarantees as far as savings or cash value earnings. However, the growth of these accounts is at a substantially higher rate than average whole life insurance. These policies can sometimes allow any dividends paid by the insurer to be placed in the cash value account, as well.
Universal life insurance is the perfect policy for someone who has yet to purchase a home or start a family but expects to do so in the future because of its easy changeability and quick profit margin. However, because it involves more participation from the policyholder, consultation is recommended.
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