Universal Life Definition
March 22nd, 2010 | Author: weissheiss
Universal life insurance is one of the main types of permanent life insurance; the others are Variable Life and Whole Life. Like the latter, a Universal Life policy is cash value based. The cash value is the dollar amount that is paid into a policy that exceeds the costs of the premium and any fees associated with the insurance. This additional money is saved in a special account, where it accrues interest-of which is determined by the insurer. Finally, this account is typically linked to a financial index, bond or mutual fund.
Who needs universal life?
Universal insurance is generally for people who need a greater amount of insurance than, say, term life normally offers. In addition, customers who purchase universal life can afford to pay slightly more for premiums and also can usually afford to contribute extra money to build up a cash value.
Variable Universal Life Coverage
Variable universal insurance is a sub-type of universal life. It is still a permanent life insurance policy, but the cash value is typically linked to mutual funds-instead of indexes or bonds. Mutual funds are a little more unpredictable and risky, but can be more lucrative in the long haul. When choosing this type of policy, make certain that you know the risks and that you could withstand an unfavorable return-should this happen with the mutual fund you or your insurer selects.
Universal vs. Whole Life Coverage
A universal life insurance policy is different from whole life coverage in that its mortality costs and expense projection rates are variable. So is the cash value yield, or surrender. However, with universal life, the insured incurs no investment risk to cash value and has the option to change premium/death benefit amounts. In addition, the insured with universal life may elect to suspend his premiums for a period of time. These are the fundamental differences between universal and whole life.
How can it be used?
Universal insurance can be used in a myriad of ways. Of course, the fundamental reason of acquiring a universal life policy is to provide funds for expenses after the insured’s death-like unpaid debts and burial costs. Some policies come with “accelerated benefits” that provide for long term care-in which the insured is terminally-ill or requires ongoing, intensive care. Also, many UL’s provide for cash withdrawals-provided that the policy has built a cash value equal to or greater than the amount requested, in either payments or capital gains. The disadvantage to doing this, though, is that death benefits will be decreased-so this feature should be used on an emergency basis only.
Flexible and Single Premium UL’s
A flexible premium UL is just what it sounds like: a policy where premiums can be adjusted, but within limits of the insurance company. To keep the policy in effect, though, the insured must keep payments up, or the cash value must be enough to cover any missed or lower payments.
A single premium universal life policy is the type of UL that generally requires the least amount of maintenance-because one very large payment is made. As long as the cash value does not dip to a non-sufficient level, the policy is in effect until the insured’s death, or until a maximum age as set forth by the insurance company.
Posted in Life Insurance | 
Tags: Benefit Amounts, Death Benefit, Extra Money, Fundamental Differences, Life Coverage, Life Insurance Policy, Premiums, Whole Life