Universal Life Insurance Policies
Universal life insurance is a hybrid between whole life insurance and term life insurance. Like term life, universal is significantly less expensive than whole life, but like whole life, universal has a savings component. The beauty of universal life is that if the insured person's circumstances change, the savings component and premiums can be changed too. The other inviting feature of universal life is that the policyholder can use interest on their savings to offset premium costs.
Many universal life policies also offer the opportunity to borrow against certain components of the policy. Of course, the investment interest on the policy decreases when this happens because the principal has decreased. Any unpaid loan balances are deducted from the death benefit.
Universal life premiums can be paid with one single payment, fixed periodic payments or a flexible premium. Single premium policies are now unusual because of IRS regulations. The fixed premium is paid for a number of years with periodic payments. Depending on the policy, they can be paid in full after a specific time or continue for the life of the policy. Premiums can also be paid on a flexible basis, but there are constraints. Whenever there's a variation on the payments, the consequences need to be evaluated against the long term ramifications on the policy. Higher premiums might be required by the insurer.
Savings on universal life policies are tax deferred. Should sufficient funds accrue in the deferred component of the policy, premium payments might not have to be paid in the future. That's a long-term goal though, as is any significant return on a universal life policy.
Variable universal life insurance offers the same flexibility of universal, but the policyholder can decide how the money is invested through various accounts in stock and bond markets with varying potential returns. These separate accounts are securities and are regulated. Insurance agents selling Variable life policies must be licensed accordingly.
Universal life policies are obviously more complicated than term or whole policies. All of them are different between companies and their available policies. Always consult with licensed insurance professionals before committing to any life insurance policy.
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