Universal life insurance policy
If you are looking for a comprehensive guide to a universal life insurance policy then look no further this is the site for you. This site will give you all of the information you need and provide you with a clear understanding of how universal life policies work before you contact a broker or insurance company to make that universal life policy purchase. We are not trying to talk you into buying from us as we do not sell insurance products, this is a site for consumers by a consumer that has experience in the insurance industry! So whether you just have a simple question like 'what is universal life insurance?' or you want an in depth breakdown of the uses or benefits of a universal life insurance policy then please take a short time to look around the site as we do have a wealth of universal life insurance information. We also cover the three main types of universal life insurance available and also pages for policy variations such as variable universal life insurance.
Universal life insurance is a permanent insurance policy so is different from other temporary life insurance policies that are found on the market such as term life insurance. We have compared the two different types of life insurance policies on our 'term or universal life insurance', page so please check this very useful comparison out.
There are several variations to universal life insurance policies and we have a page explaining each of them.
- Guaranteed Universal Life Insurance
- Variable Universal Life Insurance
- Indexed Universal Life Insurance
Not sure where to buy universal life insurance online? We can help you out there too. There are many bargain universal life insurance rates out there!
Universal life insurance policies - how they work
So we all want to know how does universal life insurance work? The basic definition of a universal life insurance policy is life insurance protection that fits the consumer's changing financial circumstances. A premium is paid to provide insurance against their death and also to invest in a cash value element. It is a permanent insurance because it will run until death or until a maturity date (commonly 95 years of age), as long as the premiums continue to be paid else the premiums will be funded from the cash value and when this runs out the policy will lapse. Please see below for an exception to this in the form of guaranteed universal life policies. The cost of the insurance is taken from the premium first and the remainder of the premium will be added to the cash value. Each month the cash value of the policy is credited with interest. The premium is flexible and can be changed on a regular basis to pay for more insurance or to add more to the cash value. The insurer will advise of minimum and maximum premium guidelines. Because the policy has a cash value it will have a 'surrender' value so the policy can be taken and an amount redeemed, however there will be terms and conditions set by the insurer. To check out which type of universal life policy is right for you check out out types of universal life insurance page.
A bit more of an in depth explanation to the question 'what is universal life insurance?' is that a universal life insurance policy is a more flexible version of a regular whole of life policy. It is a permanent life insurance policy that will run from when it was taken out until the death of the insured or until a maturity date (commonly 95 years of age), as long as the premiums continue to be paid else the premiums will be funded from the cash value and when this is exhausted the policy will lapse. However, in order to make universal life policies more attractive, insurance companies have added secondary guarantees, where if certain minimum premium payments are made for a stipulated period, the policy will remain in force for the guarantee period even if the cash value drops to zero. These are commonly called "No Lapse Guarantee" riders, and the product is commonly called 'guaranteed universal life'.
A premium is paid and will be broken down to pay for the cost of the insurance and also to provide an element of savings, interest is added to the cash value at the end of each month. The emphasis on the policy being flexible is because the policy owner is able to decide and also change how much of the premium goes to each component. It is even possible to change money between each component on universal life policies, in order to suit the policy owner's needs as an individual, understanding that these can frequently change.
As the policy is an investment related contract it will have a surrender value that can be taken should the policy be cancelled earlier, subject to the terms and conditions of the insurer.
Any other applicable policy charges, which will be highlighted by the insurer prior to the policy starting, will be deducted from the cash value on a monthly basis. However the cost of insurance and any other associated costs are much clearer for a universal life policy than whole of life insurance policies which are based on certain assumptions.
The interest applicable to a universal life insurance policy is determined by the insurance company and may well be linked to a bond or other financial index.
Two key advantages of universal life insurance
An great example of the flexibility of a universal life policy is that if the savings element of the policy is bringing back a low return, it can be used to pay for the universal life insurance premiums instead. This means that the growth of the cash value of the policy can fluctuate as the policy can be adjusted monthly. A regular whole of life policy would no allow for this interest to be used to fund the premiums.
Another popular advantage of the universal life policy is its premium flexibility and adjustable death benefits. The death benefit can be increased (as long as the insurer agrees that this increase is insurable), or decreased at the request of the policy owner.
There are three main types of universal life insurance policy, the difference is in how the premium is paid, these are:
- Single premium universal life insurance
- Fixed premium universal life insurance
- Flexible premium universal life insurance
Please visit our types of universal life insurance page here.
Why take out a universal life insurance policy?
Many people use universal life insurance policies as a source of benefit to the owner of the policy, instead of solely having the cover to benefit other people in their event of their death, like in temporary policies such as term life insurance. These benefits include loans, withdrawals, collateral assignments, split dollar agreements, pension funding, and tax planning. These are key benefits of the universal life policy and we have a whole page dedicated to why this is so please continue to read here!
There are so many uses to universal life policies and we have a page highlighting them all, please click here to find out!
We hope that this page has given you a useful insight into a universal life insurance policy and how it works. Now that you know what universal life insurance is please check out all of our other pages which have very useful information on the benefits of universal life insurance, a comparison of this popular permanent life insurance plan to the most common temporary life insurance contract on the market term life insurance in our term or universal life insurance page. We can even help you to find where to buy universal life insurance online!
