What Is Universal Life Insurance

Another type of permanent life insurance is a universal life insurance. So what is universal life insurance? It is a relatively new insurance product intended to provide coverage with greater flexibility in premium terms and adjustable benefit policy that accumulates account value. The flexibility of this type of coverage allows you to change the amount insured as your needs changes.

Though some of these changes needs or require underwriting approval. Since it relatively new product in the market, it is not the most popular type or form of insuring yourself.

As with all types of insuring yourself, the main purpose why you purchase universal life insurance coverage is the death protection provided to your family and love ones. A universal life includes a cash account and the premiums will increase the cash account. The interest is paid within the policy credited on the account at a rate specified by the insurer or by the company. The rate has a guaranteed minimum but usually is higher than that minimum.

Universal life as its commonly called guarantee to some extent the death proceeds but not the cash component or feature. The two basic functions that make it work is the mortality and the cash function. The mortality function would be the classical idea of pooling risk where the premiums paid by everybody else would cover the death benefit for the one or two who will die. Whereas the cash function says that if a person is to reach age 95 to 100, then the policy matures and endows the face value of the policy. The age varies depending on the where you live and the company policies and programs.

There are four main benefits and advantages of a universal life insurance. First is the security feature which will protect your family and love ones against possible financial burden and hardships if you pass away. This is to me the main purpose of why you should insure yourself. And it is good to know and have a sense peace giving the proper protection and care for your love ones if you are not there to help them.

The second advantage and benefit is the flexibility of this plan. Since it is flexible in nature, you will have the option to decide how much you are going to insure yourself or how much you need. You may also adjust the death benefit and the premium payments to fit your changing needs, though subject to certain requirements and limitations. When interest rates are above the minimum required, then you have the advantage and flexibility to pay less as investment returns cover the remainder to keep the policy in force.

The other two main benefits are the tax free death benefit and the tax deferred account value growth. With tax free benefit, under the current tax laws governing individual Life Insurance the proceeds are generally income tax free to the beneficiary. While under the tax deferred account value growth, your policy’s account value earns interest at the company’s current interest rate – federal income tax deferred.

For a more detailed and precise description of your coverage, you must check the statement of coverage on your policy. Understanding what is universal life insurance is will give you a better understanding and information on how you will about buying your Life Insurance.

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