What is Universal Life Insurance – Overview
Universal life insurance is lifelong or permanent insurance that stays by your side. It is also known as your side adjustable life insurance. Unlike other types of insurance, Universal Life Insurance comes with the best flexibility. What is universal life insurance?- Let’s find out!
About Universal Life Insurance:
Universal Life Insurance is a type of life insurance that provides lifelong coverage till you live. This type of insurance offers death and other benefits while the policy is in force.
When it comes to paying your premiums, Universal Life Insurance provides the best flexibility where you can adjust your premium terms and the way of investing your money in it.
How Does Universal Life Insurance Work?
As stated above, Universal Life Insurance provides lifelong protection. However, there are a few terms that you must know before investing in this type of insurance. Let’s understand the most-used terms by the insurance companies for Universal Life Insurance.
1. Premiums: Premiums for Universal Life Insurance policy are adjustable. You can adjust your premium as per your income source, as the premium paying term is fully flexible here. It is the total amount that you pay for the policy.
2. Interest: If the company earns more than what they are offering against your policy, the extra earnings against your policy will be credited to your account.
3. Cost of Insurance: The cost of insurance deducts automatically from the policy that provides death coverage.
4. Administrative Charges: The administrative charges are used to manage your policy. A specific amount is deducted from your policy every month to manage the policy and its information.
5. Surrender Fees: The surrender fees are deducted from the policy if you surrender it before it ends. Gain proper information about the surrender value and loans that you borrow while the policy is in force.
3 Types of Universal Life Insurance
You may want to consider three more types of universal life insurance while covering your life through the policy. Here we have covered all three types of this insurance that will help you choose the right one to get maximum benefits.
1. Guaranteed Universal Life Insurance
Guaranteed life insurance provides even more flexibility than standard life insurance. The guaranteed universal life insurance provides assurance amount that you will get. You will be asked to pay regular premiums yearly or monthly as per the type of premium terms to keep the policy in force.
2. Indexed Universal Life Insurance
The Indexed Universal Life Insurance helps you grow your funds while your policy is in force. You can invest your funds in a market index fund. It also works like guaranteed universal life that is backed by the insurance company. The fluctuation of premium is 0-1%.
3. Variable Universal Life Insurance
Variable universal life insurance is an advanced way to grow your funds faster than any other type. Your funds will be invested so that you can earn maximum funds. However, it is not guaranteed funds as some of your investments might not work as per your expectations.
The investments are made in money market accounts, indexes, and stocks. Investors may mix up your investments with multiple platforms to earn maximum benefits for you. If you know about investments and have prior experience, choose this type of insurance.
Pros and Cons of Universal Life Insurance
Universal Life Insurance provides great flexibility while paying your premiums. Since the policy provides lifelong coverage, you can increase or decrease the number of premiums and coverage as per your income source. Once you pay your first premium, you can pay the next premium at any time. There are no fixed premium amounts in universal life insurance for the policyholder.
2. Capless Returns
Universal Life Insurance policies have different types where you can lend your money for investments in stocks, indexes, and other sources. This will earn you extra income while your policy is still in force. The assured amount on your policy might increase as you start investing your funds.
3. Controlled Investment
You have the control to invest or not-invest your funds in this policy. You can keep a portion of your funds for investments that will earn you extra benefits while the remaining funds will remain as it is. You can keep the other money as a fixed deposit or a one-year term deposit to keep earning interest.
4. Flexible Death Benefits
Universal life insurance comes with the flexibility to increase the amount of your death benefit. You can increase your death benefits anytime you want during the policy term.
1. Requires Monitoring:
You need to keep an eye on the funds invested through your policy. If you do not pay attention, the chances of lowering your funds are high. Make sure you monitor your policy and the total funds in your policy regularly.
2. High Premiums
The premiums of this policy keep on increasing as you grow older. The premiums for this policy are higher and depend upon your income sources. If your income is decent, only invest in this policy. Otherwise, you will have to borrow money to pay your premiums if you want to keep the policy in force.
3. Risks are high
Since your money is invested in different platforms, the risks associated with your policy are high. Since the market gets fluctuates, the funds will also fluctuate. You have to keep the risk high while investing in this type of policy. The interest rates against your funds are dependent upon the market.
The Bottom Line:
Should you buy Universal Life Insurance? – Only if you want lifelong coverage. Universal life insurance is the best fit for you if you want hassle-free life coverage with flexible premiums.
You need not worry about the regular premiums and premium terms; however, you have to monitor the policy funds more frequently as they are associated with many risks. Go through the details provided in this article before you go with the Universal Life Insurance policy.
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