Universal Life Insurance

What is Universal Life Insurance?

Universal Life Insurance is an insurance policy that will last until the insured dies.  A Universal Life Insurance policy will not expire as long as premiums are continuously paid, and Universal Life Insurance policies will function for the entire lifetime of the insured.  The premium rate is guaranteed, and when the insured passes away, the policy beneficiary will be paid the death benefit.  Universal Life Insurance is generally a more affordable type of life insurance coverage comparable to Term Life Insurance.  There is a savings element that allows a cash value to grow within the policy, but the beneficiary will only receive the death benefit.  The permanence of Universal Life Insurance is the primary difference compared to Term Life Insurance.  

How does Universal Life Insurance work?

Universal Life Insurance premiums are calculated based on age, health, and overall life expectancy.  Medical exams are required for some policies.  The insured will be questioned about their lifestyle, whether they smoke, hobbies, occupation, and family medical history.  The death benefit varies but can be as high as 20 times the insured’s yearly salary.  

Many factors affect premium rates beyond the individual insured.  Interest rates, state regulation, and the insurance company itself can affect the calculated premium.  “Breakpoint” coverage levels of $100,000, $250,000, $500,000, and $1,000,000 tend to provide customers with better rates.  

When the insured dies, the insurer will pay the full death benefit to the policy beneficiary.  This payment, which is generally not taxable, can be used for anything, such as income replacement, care for a disabled child or dependent, estate tax issues, or debt.  If the premiums are fully paid within the duration of the policy, the death benefit will be paid to the beneficiary.  

It is important to note that Universal Life Insurance retains value outside of the guaranteed death benefit as opposed to Term Life Insurance.  Universal Life Insurance policies allow policy owners to save cash within the policy.  Universal Life Insurance is considered to be less expensive, which makes it ideal for those on a budget.  

The Benefits of Universal Life Insurance

As opposed to other kinds of life insurance policies, Universal Life Insurance lasts for the entirety of a policyholder’s life.  If premiums are paid in full each year, a Universal Life Insurance policy will pay the full death benefit to the policy beneficiary when the insured dies.  Universal Life Insurance policies are more flexible than Whole Life Insurance policies.  The premium and death benefit can be adjusted after purchasing the policy unlike other options.  

Not only does Universal Life Insurance have a death benefit, but there is also a savings element that can build additional cash, although this cash will not be passed along to the beneficiary.  These funds are reinvested into the policy or able to be withdrawn to use on other expenses.  When borrowing from the cash value of a Universal Life Insurance policy, the money will not be required to be paid back, but it will accrue interest and there will also likely be a cash surrender fee.  In the event the insured passes away and has borrowed funds from the cash value, this amount will be deducted from the final paid death benefit.

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