Universal Life Insurance

Universal life insurance has flexible premiums. Under a universal policy, you are given the option to adjust your premium payments up or down each time it is due, subject to minimum and maximum amounts set by the insurance company. A percentage of each premium you pay is applied to your universal life insurance policy’s cash value, making it more valuable when higher premiums are paid—just like a whole life insurance plan. However, you have the option to make low premium payments—just as you would in a term life policy—if your budget does not allow you to pay high premiums during certain times of the year (e.g., quarterly mortgage dues, yearly membership fees, college tuition payments, etc.).

Universal life insurance is interest-sensitive. The cash value of a universal policy builds on an interest rate that depends on current market rates. Therefore, in a bullish, fast-growing economy, the internal cash value of your universal life insurance policy will build at a faster rate than even a whole life policy would. However, during a slow economy, this feature does the reverse: it will ensure that your universal life insurance does not grow as quickly as whole life insurance would.

Universal life insurance has an adjustable death benefit. The death benefit under a universal life insurance policy is not fixed over the policyholder’s lifetime and may be adjusted annually. The advantage of this feature is that, during hard times, you need not sacrifice the equity your policy has built up even if you have to reduce premium payments. On the other hand, if you desire to increase your policy’s death benefit during good times, all you have to do is present proof of insurability (i.e., undergo a medical exam). But decreasing the death benefit of your universal life insurance policy requires no such proof.

Universal life is a permanent insurance product in which the internal policy charges and interest crediting components are specifically broken out separately in the policy. Universal life insurance cash value is dependent on the investment returns credited. With certain limits, the policy owner can choose the premium he or she wishes to pay and this determines how the policy values develop. The policy owner benefits from current investment and expense experience.

Each policy month, a monthly deduction to cover the cost of the insurance protection is deducted from the policy value.

The Advantages of Universal Life Insurance

Flexibility of payments, tax-deferred cash value accumulation, and coverage options (subject to contract requirements) are the primary advantages over term insurance. Because of these advantages, universal life can be used in estate planning and retirement planning, offering the policy owner a variety of options