What is Universal Life Insurance?
Universal life insurance is a flexible premium, adjustable benefit type of permanent life insurance that offers both a death benefit and a savings component. This insurance policy is designed to provide lifelong coverage, unlike term life insurance, which only provides protection for a specified period.
Components of Universal Life Insurance
- 1. Death Benefit: This is the amount paid to the beneficiaries upon the insured's death.
- 2. Cash Value: Part of the premium goes into a cash value account that grows over time, usually at a variable interest rate.
- 3. Flexible Premiums: Policyholders can adjust their premium payments and coverage amounts within certain limits.
Benefits of Universal Life Insurance
Universal life insurance provides policyholders with the ability to adapt their coverage as their financial needs change. It also allows for tax-deferred growth of the cash value, which can be accessed through loans or withdrawals. Unlike whole life insurance, universal policies can be tailored to meet changing financial goals.
Considerations
While universal life insurance offers flexibility, it can be more complex and requires careful management. Policyholders should be aware of fees, interest rates, and the potential for the cash value to decrease. It's advisable to assess personal financial needs and consult with an insurance professional before purchasing a policy.