How Universal Life Works
Consider universal life insurance. One of the more popular permanent policies is the universal life policy. What is this universal life all about anyway?
This policy is permanent insurance which allows for flexibility in premium payments as well as in death benefit amounts. Think of this policy as a savings account with a life insurance policy attached.
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More On Universal Life Insurance
- Premium Payments
Unlike other types of life policies your premium payments are deposited into a savings account which earns interest on your money. Monthly withdrawals are taken from your account to pay administrative costs and life insurance premium costs.
You can enter into a contract with the company of your choice to deposit money into your account on a regular basis like you do with any other policy. Your premiums can be monthly, quarterly, half yearly or annually.
On the other hand, you may choose to deposit larger amounts into your account in a less frequent manner. You can make your deposits in your universal life insurance account whenever you feel the need or desire to do so.
It does not matter which way you choose to go. The important thing to keep in mind is that there always needs to be sufficient money in the account to take care of the premium payments.
The company includes in your contract a minimal guaranteed interest rate on the money in your account. As long as you keep depositing the minimum amount required your universal life policy cannot fall into a state of lapse.
- Savings Element
You may want to know if it would be better to buy term insurance and just put the rest of the money into a savings account. The savings portion of your deposit has a guaranteed interest rate.
You can deposit money when you want to. Term life insurance is temporary insurance. You buy a term policy for a specific number of years. If you need life insurance after that period of time you may not be able to qualify for it.
You may want to use your saving plan for a college fund for your children or possibly to top up your retirement fund.
The life insurance attached to your plan, though term based, lasts much longer that the better known term policies. You can keep your universal life insurance policy for the rest of your life.
You can reduce the amount of death benefit any time you choose. You can also increase the death benefit but, depending on age and physical condition you may need to prove that you qualify for the additional coverage.
- Policy Riders
You can add the waiver of premium rider to your policy. This provides that if you should become disabled for a minimum of 6 months the insurance company will pay your premiums for you for as long as you are disabled, even if it is for the rest of your life.
You can also add the double indemnity rider to your policy which provides double the death benefit if your death occurs accidentally.