Universal life insurance gives policy holders the option of making changes to their policies; other permanent life insurance policies do not offer this much flexibility. With universal life insurance, policy holders will not have to pay the same rates from the start of the policy until the end if this isn’t possible for them. If they would like to change the rate, the universal life insurance policy allows for this to happen.
Sometimes, people would like to set a different amount for the death benefits their beneficiaries will receive, and universal life insurance permits policy holders to do this, too. The other distinguishing features of universal life insurance are that it doesn’t have an expiration date, and the cash value that accrues is not subject to being taxed by the federal government.
How Universal Life Insurance Benefits the Policy Holder
The fact that the policy holder has the flexibility that was described above is what makes universal life insurance such a good purchase. As each new universal life insurance policy is being written, the policy holders decide on the amount of coverage they would like to purchase and they help the insurance company determine how much the policy is going to cost each month.
Universal Life Insurance Rates
Several years after people purchase their universal life insurance policies, they may experience a few changes in their lives. A major change presents itself when people retire; while they are working they have more spending power than they do after they have stopped working. Whenever there is a major change in a policy holder’s life, they may need to adjust the rate of their premiums, and they can do this with a universal life insurance policy. They may choose to pay more at a given time or they may decide that they need a lower payment; they can even request to skip a payment or two if they, for example, become unemployed.
The death benefit is also open to being altered when policy holders discover that they need it to be lower or higher. Other permanent life insurance policies have the policy holder choose how much money they would like to leave to their beneficiaries and the insurance company determines how much the premiums will be for the death benefits chosen. These rates will remain in place forever and the policy holder cannot change any of it. Because this isn’t true for universal life insurance policies and they can make adjustments when they see fit, people like to choose the universal life policy over the other types.
The Universal Life Insurance Cash Value
The cash value increases on a tax-deferred basis. Policy holders can receive the cash value by:
1. Canceling the policy; policy holders will receive what is called the cash surrender value
2. Borrowing a sum of money from the cash value
3. Placing the cash value toward paying the premiums
4. Investing the cash surrender value in a retirement account
What Are the Disadvantages of a Universal Life Insurance Policy?
Insurance companies cannot guarantee that the investment portion of the universal life insurance policy will earn a set amount because the amount by which the cash value increases is determined by the premiums the policy holder pays. In contrast, the amount that will be earned can be guaranteed when people purchase whole life insurance policies.
Universal life insurance premiums may be adjusted by the policy holders, but they are not completely in control of how much these premiums will be; they will need to be sure that they are paying at least the target amount the insurance company has set. Also, before policy holders can set a new premium, they must have sufficient cash value in their policies that can pay the expenses involved in changing the policy.
Universal life insurance gives policy holders the ability to lower their premiums when they are experiencing a reduction in their income, but this fact may not be enough to make this type of policy affordable for everyone. To find out what less expensive options are available for life insurance, go to the term life insurance page to receive a quote on term life insurance now.