Universal Life Insurance (sometimes known as Flexible Premium Adjustable Life Insurance) is insurance with a savings element that grows on a tax-deferred basis. Some portion of the premium is invested by the insurance company in common bonds, money market funds, and mortgages. Universal Life Insurance gives more flexibility to pay smaller or larger premiums and to adjust the death benefit as the insured‘s financial needs change. As investments tend to be in shorter-term instruments, Universal Life Insurance offers the possibility of greater profit (and loss) than does a standard Whole Life Insurancepolicy.
What Universal Life Insurance Is Not
Universal Life Insurance isn’t a form of Term Life Insurance. Instead, it is a kind of permanent insurance that typically has no expiration date and no need for renewal. The accumulated cash value of the policy will be paid out to beneficiaries upon the insured’s death.
Unlike Variable Life Insurance (another form of Whole Life Insurance), the insurance company makes all the investments for Universal Life Insurance policies.
Who Needs Universal Life Insurance?
Universal Life Insurance is designed for people who want a bit more flexibility to adjust their premiums and death benefit, and who are willing to assume a bit more risk in hopes of getting a greater return. It is also for people who want the insurance company to manage their investments, rather than do it on their own. Universal Life Insurance is a good choice for people with incomes and expenses that fluctuate a great deal from year to year.
Things To Think About
Universal Life Insurance premiums may go up (and the cash value may go down) if the investments fare poorly. It is therefore important to take a close look at past performance, and to understand where the investments are made. How comfortable are you with taking on some degree of risk?
Find out if the policy offers a guaranteed minimum interest rate. Many policies guarantee at least a 4% return. Also find out if the insurance company requires a medical exam in order for you to adjust the premium payments and/or death benefit.